MIDTERMS o Where one corporation is so organized and controlled and its affairs are

conducted so that it is in fact a mere instrumentality or adjunct of the
THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Blg. 68) other
Alter Ego – a SH of a group or a group of SH of a stock corporation controls
Q: What is a corporation? another corporation
Sec. 2. Corporation defined. - A corporation is an artificial being created by o Where the corporation is a mere alter ego/farce/conduit of individual
operation of law, having the right of succession and the powers, attributes and SH; Where a subsidiary corporation is created by a parent company
properties expressly authorized by law or incident to its existence. merely as an agency especially if SH/officers are the same
Factors:
Q: What are the 4 attributes of a corporation? 1. Parent owns all/most of capital stock
(SOAP) 2. They have common directors/officers
1. It has the Right of Succession 3. Parent finances subsidiary
2. It is created by operation of law 4. Parent subscribes to all the capital stock
3. It is an artificial being with separate and distinct personality 5. Subsidiary has inadequate capital
4. It has the powers, attributes, and properties expressly authorized by law or 6. Subsidiary is only a department
incident to its existence 7. Parent uses property as its own

Q: What is the doctrine of corporate entity? Q: What are the 3 tests IF BASED ON THE INSTRUMENTALITY RULE?
A corporation is a legal or juridical person with a personality separate and apart 1. Control, not mere majority or complete stock control, but complete domination,
from its individual SH or members and from any other legal entity to which it may not only of finances but of policy and business practice in respect to the
be connected transaction attacked so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
Q: What is the doctrine of piercing the corporate veil? What is the test? 2. Such control must have been used by the defendant to commit Fraud or wrong,
The court will not hesitate to disregard the corporate veil when it is misused or to perpetuate the violation of a statutory or other positive legal duty, or dishonest
when necessary in the interest of justice. The concept of corporate entity was not and unjust act in contravention of plaintiff's legal rights; and
meant to promote unfair objectives 3. The aforesaid control and breach of duty must proximately cause the injury or
The doctrine is used for unjust loss complained of. (Harm)
o 1. Convenience
o 2. To subserve the ends of justice Q: What is the difference between a corporation and a partnership?
Instances: As to creation
o 1. Separate personality will be disregarded As to # of incorporators
o 2. The veil of corporate fiction will be pierced As to commencement
o 3. A corporation will be treated as a mere alter ego As to powers
Some purposes: As to management
o To defeat public convenience, to justify a wrong, to protect fraud, to As to effect of mismanagement
defend a crime As to existence of right of succession
Caveat: the doctrine is frowned upon and must be proceeded with caution As to extent of liability to third persons
Presumption: Separate and distinct As to transferability of interest
Effect: The corporate character is not necessarily abrogated, but the corporation As to term of existence
continues for legitimate purposes As to firm name
o Effect as to liability: As to dissolution
o 1. Corpo = mere association of persons As to law governing
o 2. SH or members = may be personally liable
o 3. Where there are 2 corpos = merged into 1 Q: Can a corporation become a partner?
GR: No. In entering into partnership, the identity of a corporation is lost or merged
Q: What is the instrumentality or alter ego rule? with that of another and the direction of its affairs is placed in the hands of other
Instrumentality Rule – a corporation controls another corporation persons other than those provided for by law of its creation

Nudibranch 1

o EXPN: o Non-stock Corporation - All other corporations are non-stock
o 1. Corpo may enter into a Joint Venture with another where the nature corporations.
of the venture is in line with the business authorized by its charter Purpose: public goal or welfare
o 2. SEC allowed the JVP As to # of persons:
o 3. Where the agreement provides that the 2 will manage the o Corporation Aggregate
partnership so that the management of the corporate interest is not o Corporation Sole
surrendered As to whether they are for religious purposes or not:
o REQ: o Ecclesiastical Corporation
1. All corpos are managing partners o Lay Corporation
2. Law/charter/AOI expressly allows it As to whether they are for charitable purpose or not:
3. Foreign corpo has license to transact here o Eleemosynary Corporation
o Civil Corporation
Q: What are the advantages and disadvantages of a corporation? As to State under whose laws they have been created:
Advantages (ACS-MS-LAT) o Domestic Corporation
o 1. Legal capacity to Act in its own name o Foreign Corporation
o 2. Continuity of existence As to their legal right to corporate existence
o 3. Credit is Strengthened by continuity o De Jure Corporation
o 4. Management is with BOD o De Facto Corporation
5. Creation, Organization, Management, and Dissollution is As to whether they are open to public ownership or not
Standardized o Open Corporation
o 6. Makes feasible gigantic financial undertakings o Close Corporation
o 7. SH have Limited Liability As to whether their relation to other corporation
o 8. Not general agents o Parent/Holding Corporation
o 9. Shares of stock may be transferred o Subsidiary Corporation
Disadvantages: (CEWL-LGS-TV) o Affiliated Corporation
o 1. Complicated in formation As to whether they are for government purposes
o 2. Entails high cost o Public Corporation – mere instrumentality of the State subj to gov’t
o 3. Credit is weakened visitation and control
o 4. Lack of personal element o Private Corporation - - A contract between the State and corporation
o 5. Greater degree of governmental control not subj to visitation by the State
o 6. Management and control is separated from ownership GOCC’s
o 7. Voting rights have become theoretized Quasi-Public Corporation
o 8. SH have little voice As to whether they are corporation in a true sense or limited sense only
Hypos from quiz: o True Corporation
Redeemable shares problem o Quasi-corporation
Can Redeemable shares become treasury shares? Corporation by prescription
Mismanagement problem Corporation by estoppel

Q: What are the classes of corporation? Sec. 4. Corporations created by special laws or charters. - Corporations created by special
Sec. 3. Classes of corporations. - Corporations formed or organized under this laws or charters shall be governed primarily by the provisions of the special law or charter
Code may be stock or non-stock corporations. creating them or applicable to them, supplemented by the provisions of this Code, insofar as
o Stock Corporation - Corporations which have capital stock divided into they are applicable.
shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares Sec. 5. Corporators and incorporators, stockholders and members. - Corporators are those
held are stock corporations. who compose a corporation, whether as stockholders or as members. Incorporators are those
Purpose: profit stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.

Nudibranch 2

further, That there shall always be a class or series of shares which have complete voting
Corporators in a stock corporation are called stockholders or shareholders. Corporators in a rights. Any or all of the shares or series of shares may have a par value or have no par value as
non-stock corporation are called members. may be provided for in the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan associations shall not
Q: Who are the persons composing a corporation? be permitted to issue no-par value shares of stock.
1. Corporators – those who compose the corporation whether
o Stockholders; or Preferred shares of stock issued by any corporation may be given preference in the
o Members distribution of the assets of the corporation in case of liquidation and in the distribution of
2. Incorporators – those corporations mentioned in the AOI as originally forming dividends, or such other preferences as may be stated in the articles of incorporation which
and composing a corporation; and who executed and signed the AOI; and are not violative of the provisions of this Code: Provided, That preferred shares of stock may
acknowledged the same before a notary public be issued only with a stated par value. The board of directors, where authorized in the articles
o Function: to enable a corporation to become a body politic under the of incorporation, may fix the terms and conditions of preferred shares of stock or any series
law thereof: Provided, That such terms and conditions shall be effective upon the filing of a
3. Stockholders – the owners of shares of stock in a stock corporation certificate thereof with the Securities and Exchange Commission.
4. Members – corporators of a stock corporation which has no capital stock
3 OTHER CLASSES: Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
o 1. Promoter – persons who bring about the formation and organization and the holder of such shares shall not be liable to the corporation or to its creditors in
of a corporation by bringing together incorporators or persons respect thereto: Provided; That shares without par value may not be issued for a
interested in the enterprise, procuring subscriptions or capital for the consideration less than the value of five (P5.00) pesos per share: Provided, further, That the
corporation and setting in motion the machinery which leads to the entire consideration received by the corporation for its no-par value shares shall be treated as
incorporation of the corporation itself; they lay the “groundwork” capital and shall not be available for distribution as dividends.
o 2. Subscriber – persons who have agreed to take and pay for original,
unissued shares of a corporation formed or to be formed A corporation may, furthermore, classify its shares for the purpose of insuring compliance
o 3. Underwriter with constitutional or legal requirements.

Q: What are the classifications of shares? Except as otherwise provided in the articles of incorporation and stated in the certificate of
Common stock, each share shall be equal in all respects to every other share.
Preferred
Voting Where the articles of incorporation provide for non-voting shares in the cases allowed by
Non-voting this Code, the holders of such shares shall nevertheless be entitled to vote on the following
Share in escrow matters:
Over-issued 1. Amendment of the articles of incorporation;
Watered 2. Adoption and amendment of by-laws;
Par value 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of
No par value the corporate property;
Convertible 4. Incurring, creating or increasing bonded indebtedness;
Fractional 5. Increase or decrease of capital stock;
Promotion 6. Merger or consolidation of the corporation with another corporation or other
Founder’s corporations;
Redeemable 7. Investment of corporate funds in another corporation or business in accordance with this
Treasury Code; and
8. Dissolution of the corporation.
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such Except as provided in the immediately preceding paragraph, the vote necessary to approve a
rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, particular corporate act as provided in this Code shall be deemed to refer only to stocks with
That no share may be deprived of voting rights except those classified and issued as voting rights.
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,

Nudibranch 3

Any number of natural persons not call.At least twenty-five percent (25%) of the authorized capital stock as stated in donation or through some other lawful means. redemption. Contents of the articles of incorporation. Sec. Each of the incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation. Redeemable shares. 13. fifteen (15). Where a 5. . the articles of incorporation shall state which is the primary purpose and which is/are he secondary purpose or purposes: Provided. The place where the principal office of the corporation is to be located. or in the absence of a fixed date or dates.Treasury shares are shares of stock which have been issued and fully Sec. That in no case shall the paid-up capital be less than five residents of the Philippines. which shall not be less than five (5) nor more than Exchange Commission. of incorporation. The term for which the corporation is to exist. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission.Redeemable shares may be issued by the corporation when corporations incorporated under this Code shall not be required to have any expressly so provided in the articles of incorporation. Such shares may again be disposed of for a the articles of incorporation must be subscribed at the time of incorporation.000. the names. 12. . 10. Majority must be residents 3. regardless of the existence of 5. the par value of each. Minimum capital stock required of stock corporations. justifiable reasons for an earlier extension as may be determined by the Securities and 6. .Stock Sec. containing (5-MOAN) substantially the following matters. The specific purpose or purposes for which the corporation is being incorporated. except as otherwise prescribed by this Code or by special 1.Sec. and upon such other terms EXPN: except as otherwise specifically provided for by special law. must also be stated in the certificate of stock representing said shares. The names. the amount of its authorized capital stock in lawful money of o Provided: not earlier than 5 years prior to the expiration date the Philippines. The as such. Natural Person not suffering from legal incapacity corporation has more than one stated purpose. Of legal age 2. They may be purchased or taken up by minimum authorized capital stock (as long as the paid up capital is not less than the corporation upon the expiration of a fixed period. Amount of capital stock to be subscribed and paid for the purposes of paid for. which terms and conditions the provisions of the following section. 11. o Unless: sooner dissolved.000) unrestricted retained earnings in the books of the corporation. Q: What is the requirement as to capital stock requirement? GR: Sec. an earlier extension provided that where the exclusive right to vote and be voted for in the election of directors is Extension may be made but not exceeding 50 years in a single instance granted. however. in accordance with this Code. 7. purposes. earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are 5. Each must own or subscribe to at least 1 share of the capital stock 1. 14.Founders' shares classified as such in the articles of incorporation EXPN: SEC determines that there are justifiable reasons for may be given certain rights and privileges not enjoyed by the owners of other stocks. nationalities and residences of the incorporators. That no extension can be made 4. 13: The 25%-25% rule Sec. but subsequently reacquired by the issuing corporation by purchase.All corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation in any of Q: What are the qualifications of incorporators a corporation? the official languages duly signed and acknowledged by all of the incorporators. . period is shortened or extended 8. The number of directors or trustees. That a Sec. upon call for payment by the board of less than five (5) but not more than fifteen (15). and at least reasonable price fixed by the board of directors. 7. twenty-five (25%) per cent of the total subscription must be paid upon subscription. Founders' shares. The names. . Number and qualifications of incorporators. . it must be for a limited period not to exceed five (5) years subject to the approval of There is no limit to the number of extensions the Securities and Exchange Commission. incorporation. . If it be a stock corporation. Treasury shares. and in case the share are par value shares. Provided. corporate term as originally stated in the articles of incorporation may be extended for 3. o Sec. 4. 8. nationalities and residences of the original Nudibranch 4 . all of legal age and a majority of whom are directors: Provided. the number of shares into which it is divided. nationalities and residences of persons who shall act as directors or trustees Q: What is the term of existence of a corporation? until the first regular directors or trustees are duly elected and qualified in accordance with GR: Not exceeding 50 years this Code. . may form a private corporation for any lawful purpose or Thousand (P5. the balance to be payable on a date or dates fixed in the contract of subscription without need of Sec. The name of the corporation. Corporate term. and subject to and conditions as may be stated in the articles of incorporation.A corporation shall exist for a period not exceeding fifty (50) years non-stock corporation may not include a purpose which would change or contradict its nature from the date of incorporation unless sooner dissolved or unless said period is extended.00) pesos. which must be periods not exceeding fifty (50) years in any single instance by an amendment of the articles within the Philippines. Not less than 5 but not more than 15 law: 2. 9.

3. the corresponding fees must be paid. and a copy thereof duly certified under oath by law to be set out in the articles of incorporation. 68) 10. without prejudice to Sec. or the vote or written assent of at least two. such fact must be stated. All laws applicable thereto including the Corporation Code 
 less than five thousand (P5. By laws 4. and for legitimate purposes. such paid-up capital being not 4. Articles of Incorporation deem necessary and convenient. Q: What is a Charter? Date of effectivity: The amendments shall take effect upon their approval by the It is an instrument or authority from the sovereign power bestowing the right or Securities and Exchange Commission or from the date of filing with the said privilege to be and act as a corporation Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. It depends. and if some or Q: What are the components of a corporate charter? all of the shares are without par value. Such other matters as are not inconsistent with law and which the incorporators may 2. shall be submitted to the Securities and Exchange Commission. the amount of its capital. . and 1. 15. incorporation may be amended by a majority vote of the board of directors or trustees and WRITEN ASSENT – the SH vote on the amendment need not the vote or written assent of the stockholders representing at least two-thirds (2/3) of the be taken at a meeting outstanding capital stock. All applicable provisions of the Constitution and the general laws of the state in The Securities and Exchange Commission shall not accept the articles of incorporation of any force at the time the corporation was incorporated 
 stock corporation unless accompanied by a sworn statement of the Treasurer elected by the As to corporations created by special laws. Law under which it was organized (B. The original and amended articles together shall contain all provisions required by law to be o Submission and filing to SEC set out in the articles of incorporation. Grounds when articles of incorporation or amendment may be rejected or Charter applies to the instrument bestowing such right and privilege disapproved. Q: What are the requirements to Amend the Articles of Incorporation under Section 16? Sec. Aside from the filing the amendment. without prejudice to the appraisal right of dissenting stockholders o Submission and filing to SEC in accordance with the provisions of this Code. . Amendment of Articles of Incorporation. as amended shall be indicated by underscoring the change or amendment or amendments have been duly approved by the required vote of the changes made. and at least twenty-five (25%) of the total subscription 2. the corporate secretary and a majority of the directors or trustees stating the fact that said Such articles. the charter consists of: subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of 1. Special law which creates the corporation the corporation has been subscribed. Executive Orders of the President has been fully paid to him in actual cash and/or in property the fair valuation of which is equal 3.000. 9. secretary and a majority of the directors or trustees stating the fact that said The amendments shall take effect upon their approval by the Securities and Exchange amendment or amendments have been duly approved by the required vote of the Commission or from the date of filing with the said Commission if not acted upon within six stockholders or members. Commission.The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the Nudibranch 5 . as amended shall be indicated by The original and amended articles together shall contain all provisions required by underscoring the change or changes made. o The vote or WRITTEN ASSENT of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. o The vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. shall be (submitted) to the Securities and Exchange (6) months from the date of filing for a cause not attributable to the corporation. Rules & Regulations applicable to such corps 
 to at least twenty-five (25%) percent of the said subscription.P. the names. 16. following form: With respect to Stock corporations: (RVS) o (resolution) By a majority vote of the board of directors or trustees and First Meeting. and the amount subscribed and paid by each on his subscription. any provision or matter stated in the articles of provisions of this Code. . Forms of Articles of Incorporation. 17.subscribers. Q: How is it different from a Franchise? Franchise is the right or privilege itself of being a corporation Sec. Such articles.Unless otherwise prescribed by this Code the appraisal right of dissenting stockholders in accordance with the or by special law. If it be a non-stock corporation. nationalities and As to corporations formed under the general incorporation law: residences of the contributors and the amount contributed by each.00) pesos. and a copy thereof duly certified under oath by the corporate stockholders or members. Not otherwise prohibited by Corporation Code or by special law articles of incorporation of all domestic corporations shall comply substantially with the For legitimate purposes. With respect to Non-stock corporations: thirds (2/3) of the members if it be a non-stock corporation.Unless otherwise prescribed by special law.

requirements of this Code: Provided. might nevertheless have been used so long and so exclusively by one producer with reference to his article. building and loan associations. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or online paid if false. CA Q: Is the enumeration under Section 17 exclusive? Q: What is the meaning of Lyceum? No. o Corporation or Corp. in that trade Q: What are the grounds for disapproval or rejection of amendment of the AOI? (NUTO) and to that branch of the purchasing public. There was no application Sec. That the Treasurer's Affidavit concerning the amount of capital stock subscribed Q: What is the undertaking required to be submitted to the SEC by the corporation? and/or paid if false. The following are grounds for such rejection or disapproval: amended certificate of incorporation under the amended name. Part of name 2. and other Doctrine of Secondary Meaning corporations governed by special laws shall be accepted or approved by the Commission o A word or phrase originally incapable of exclusive appropriation with unless accompanied by a favorable recommendation of the appropriate government agency reference to an article on the market. o This is important for lawyers because the first thing that must be done immoral. public utilities. reasonable time within which to correct or modify the objectionable portions of the articles When a change in the corporate name is approved. in the other schools.No corporate name may be allowed by the Securities to become a corporation and Exchange Commission if the proposed name is identical or deceptively or Q: Assuming that there was application. Lyceum of Aparri) 2. Under PD 902-A. 1. the SEC may suspend or revoke after proper notice and o Root word “Liceo” means institution for learning hearing the franchise of corporations. insurance companies. Similarity with another trade name 2. is this sufficient? confusingly similar to that of any existing corporation or to any other name already Nudibranch 6 . immoral. when organizing and usually it is done by reserving a corporate name 3. That the purpose or purposes of the corporation are patently unconstitutional. the Commission shall issue an or amendment.e. educational institutions. illegal. LYCEUM V. . or contrary to government rules and regulations. That the Commission shall give the incorporators a protected by law or is patently deceptive. That the articles of incorporation or any amendment thereto is not substantially come to mean that the article was his product 
 in accordance with the form prescribed herein. Failure to file required reports in appropriate forms as determined by the o SC says that not all of the 3 requisites of a de facto corporation was commission within the prescribed period
 complied with Q: Which requisite was not complied with? Q: Can you think of any other ground? o There was no bona fide attempt to organize. NORTHEASTERN 4. Corporate name. confusing or contrary to existing laws. That the articles of incorporation or any amendment thereto is not substantially in Q: What are the limitations on the corporate name? accordance with the form prescribed herein. 3. The undertaking which is attached to articles of incorporation is that the 4. Incorporation or Inc illegal. 18. Fraud in procuring its certificate of incorporation confuse the public (i. descriptive. o ‘Bonded’ if the company is not a licensed bonding company o ‘Bank’. they put the geographical phrase so as not to 1. ‘Rural Bank’ No articles of incorporation or amendment to articles of incorporation of banks. That the percentage of ownership of the capital stock to be owned by citizens of corporation will change its name later on in case it is discovered that it is in use the Philippines has not been complied with as required by existing laws or the already by an existing corporation Constitution. banking and o Savings and Loan association quasi-banking institutions. partnerships or associations upon any of the Q: Won’t it be confusingly similar? grounds: o No. Prohibited use of certain names under special laws 4. the word or phrase has 1. Serious misrepresentation TH 3. trust companies and other financial o Financing companies intermediaries. Failure to file by laws within the required period personality. That the purpose or purposes of the corporation are patently unconstitutional. Continuous inoperation for a period of at least 5 years Q: One argument was that the church was a de facto government to give them 5. Refusal to comply with or defiance of a lawful order of the commission
 7 DAY ADVENTIST V. How did SC rule? 6. That the percentage of ownership of the capital stock to be owned by citizens of the o ‘United Nations/UN’ Philippines has not been complied with as required by existing laws or the Constitution. because geographically or other to the effect that such articles or amendment is in accordance with law. or contrary to government rules and regulations.

nd
o No, mere application is not sufficient. In order to complete the 2 De Facto Corporation – organized with a colorable compliance with the
requisite, there must be issuance of the Articles of Incorporation by SEC requirements of a valid law and its existence cannot be inquired collaterally but
such inquiry may be made by the SolGen in a quo warranto proceeding
INDUSTRIAL REFRACTORIES V. CA
Q: What are the instances that made the public confused? Q: What are the requisites of a De Facto Corporation?
o 1. Both have the same 3 words (LAC)
o 2. Similar packaging 1. A valid law under which a corporation with powers assumed might be
o 3. They cater to the same clientele – steel incorporated
Q: How did the SC rule on the issue of jurisdiction? 2. A bona fide attempt in GF to organize a corporation under such law
o The SEC has the authority to approve the corporate name 3. Actual user or exercise in Good Faith of corporate powers upon it by law

Q: When does the corporation acquire juridical personality? Q: What do you mean when you say collateral attack of the corporate existence
Sec. 19. Commencement of corporate existence. - A private corporation formed or One whereby corporate existence is questioned in some incidental proceedings
organized under this Code commences to have corporate existence and juridical not provided by law for the express purpose of attacking the corporate existence
personality and is deemed incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its official seal; and Q: So can a private person attack the existence of a corporation?
thereupon the incorporators, stockholders/members and their successors shall No. Only the State can do so.
constitute a body politic and corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless said period is Q: What must be done to attack the corporate existence?
extended or the corporation is sooner dissolved in accordance with law Direct Attack
o One whereby the State, in a proceeding brought for that purpose,
Q: What is the effect when the AOI are issued by SEC? attacks the existence of an association claiming to be a corporation
The incorporators, stockholders/members and their successors shall constitute a o Can only be instituted by the Solicitor General by Quo Warranto
body politic and corporate under the name stated in the articles of incorporation proceedings
for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. Q: Instances of De Facto Corporation? What is a good example? –
nd
Q: What is the corporate maximum term? Q: What is meant by the 2 requisite, “bona fide” intention to organize?
50 years extendible for another 50 years Application to organize corporation
Submission of all requirements
Sec. 20. De facto corporations. - The due incorporation of any corporation claiming in good Issuance of AOI
faith to be a corporation under this Code, and its right to exercise corporate powers, shall not
be inquired into collaterally in any private suit to which such corporation may be a party. Such HALL V. PICCIO
inquiry may be made by the Solicitor General in a quo warranto proceeding. To become a De Facto Corporation, the articles of incorporation need to be filed
and the SEC must issue the certificate of incorporation. This is the same doctrine
th
Q; Does a de facto corporation have juridical personality? reiterated in the 7 day Adventist case.
Yes. A de facto may exercise the same power that a de jure exercises
Assignment: starting from corporation by estoppel up to Sec. 25 plus 4 add’l cases
Q: What is the difference between de facto and de jure as to the exercise of corporate
powers? Second Meeting.
No difference, as to the exercise of corporate powers.
De Jure Corporation – a corporation created in strict or substantial conformity Q: What is a corporation by Estoppel?
with the mandatory or statutory requirements for incorporation and the right of Sec. 21. Corporation by estoppel. - All persons who assume to act as a
which to exist as a corporation cannot be successfully attacked or questioned by corporation knowing it to be without authority to do so shall be liable as general
any party even in a direct proceeding for that purpose by the state partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible corporation is sued on

Nudibranch 7

any transaction entered by it as a corporation or on any tort committed by it as Refers to the act of conducting election of directors and officers, adoption of by-
such, it shall not be allowed to use as a defense its lack of corporate personality. laws, and filing of the same with the SEC; establishment of a principal office;
On who assumes an obligation to an ostensible corporation as such, cannot resist providing for subscription and payment of capital stock
performance thereof on the ground that there was in fact no corporation
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
INTERNATIONAL BUSINESS TRAVEL V. CA & KHAN corporate powers of all corporations formed under this Code shall be exercised, all business
Q: Was the doctrine of corporation by estoppel applied here? Yes. conducted and all property of such corporations controlled and held by the board of directors
Q: Why did the SC say that the CA misapplied the doctrine? or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year until their
LIM TONG LIM V. PHILPPINE FISHING GEAR successors are elected and qualified.
Q: How did the SC address that he was not even a signatory?
Q: Does the fact that he benefitted mean that he was already part of the Every director must own at least one (1) share of the capital stock of the corporation of which
corporation? he is a director, which share shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of the capital stock of the
LOZANO V. DE LOS SANTOS corporation of which he is a director shall thereby cease to be a director. Trustees of non-
Q: Why does the doctrine of corporation by estoppel apply? stock corporations must be members thereof. A majority of the directors or trustees of all
Q: So when does the principle only apply? corporations organized under this Code must be residents of the Philippines.
rd
o When 3 person believed in GF
Q: Who is the governing body?
Q: Is there such a thing as automatic dissolution? Board of directors which shall exercise the powers of the corporation; enter into
Yes. business on behalf of the corporation; and hold the property of the corporation
Sec. 22. Effects on non-use of corporate charter and continuous inoperation of a
corporation. If a corporation does not formally organize and commence the Q: What is the Business Judgment Rule?
transaction of its business or the construction of its works within two (2) years Questions of policy or management are left solely to the honest decisions of
from the date of its incorporation, its corporate powers cease and the officers and directors of a corporation and so long as they act in GF, their orders
corporation shall be deemed dissolved. are not reviewable by the courts
However, if a corporation has commenced the transaction of its business but GR: Courts cannot interfere acts of directors so long as they are intra vires
subsequently becomes continuously inoperative for a period of at least five (5) o EXPN: The act is so oppressive and it adversely affects the minority
years, the same shall be a ground for the suspension or revocation of its status of the corporation
corporate franchise or certificate of incorporation.
This provision shall not apply if the failure to organize, commence the transaction Q: What is the term of the officers?
of its businesses or the construction of its works, or to continuously operate is due 1 year until a successor is elected and qualified
to causes beyond the control of the corporation as may be determined by the There is a hold over status of a member of the Board of Directors (or simply
Securities and Exchange Commission. ‘Director’). Meaning, he will continue on the business unless a successor is elected
and qualified
Q: What are the grounds for revocation or suspension?
nd
Sec 22, 2 par: However, if a corporation has commenced the transaction of its Q: What are the qualifications of a Director?
business but subsequently becomes continuously inoperative for a period of at At least 1 share
least five (5) years, the same shall be a ground for the suspension or revocation of o Which must be continuously owned by him. Otherwise, he ceases to
its corporate franchise or certificate of incorporation become a director
His name is registered in the books of the corporation
Q: What is the meaning of “failure to formally organize”? What acts must be done? Majority of the members are residents of the Philippines
This does NOT include the filing of the AOI. R: If there is already an existing
corporation, it already presupposes that AOI has been filed with the SEC and the Q: Can the AOI or By-laws provide for other qualifications?
latter has already issued Cert. of Incorporation. Yes. Provided, that it will not be in conflict with the qualifications set out in the
Corpo Code

Nudibranch 8

GRACE CHRISTIAN HIGH SCHOOL V. CA Q: We said that directors must be elected. What are the limitations/conditions of election?
Issue as to the validity of the clause granting to a permanent seat on the board. A meeting must be called for the purpose
Doctrine: Directors must be elected, not appointed. o Presence of majority of stockholders representing the outstanding
capital stock/members
GOKONGWEI V. SEC Method of voting permitted
Doctrine of Corporate Opportunity – Director occupies a position of trust and o Viva voce (raising of hands), if there is a shareholder who wants to vote
confidence; of a fiduciary nature; he cannot take advantage of his position for his by ballot, then it shall be mandatory
own personal interest In case of failure of election, then the meeting may adjourn from day-to-day
Cannot serve 2 masters (except indefinitely)
3 issues:
(1) WON the amended by-laws which provide for disqualification is valid? Yes. Q: Is notice required? For what?
(2) WON petitioner has the right to look into the books of the corporation as a Yes. For the meeting
shareholder? The SC did not allow the inspection. Reason?
(3) WON SEC was correct in allowing the ratification of petitioner in investing in a Q: What does the law provide as to owners of delinquent stock?
foreign corporation? They cannot vote nor be voted for

INTER-ASIA INVESTMENTS V. CA Q: Stockholders cannot be deprived of the method of voting. What are the methods?
Q: Why was the corporation bound even if there was no delegation? (1) Straight voting method
Q: How did the SC come up with the implied authority? o Every SH may vote such number of shares for as many persons as there
o The power of buying stocks includes all acts necessary thereto, such as are directors to be elected
to enter into a payment scheme in order to settle an obligation of the A shareholder can vote such number of shares for as many
corporation persons as there are directors equally
(2) Cumulative voting for 1 candidate method
Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, there must o A SH is allowed to concentrate his votes and give one candidate as
be present, either in person or by representative authorized to act by written proxy, the many votes as the number of directors to be elected multiplied by the
owners of a majority of the outstanding capital stock, or if there be no capital stock, a number of shares shall equal
majority of the members entitled to vote. The election must be by ballot if requested by any A shareholder can give one candidate all his votes
voting stockholder or member. In stock corporations, every stockholder entitled to vote shall (3) Cumulative voting by distribution
have the right to vote in person or by proxy the number of shares of stock standing, at the o By this method, a SH may cumulate his shares by multiplying also the
time fixed in the by-laws, in his own name on the stock books of the corporation, or where number of his shares by the number of directors to be elected and
the by-laws are silent, at the time of the election; and said stockholder may vote such number distribute the same among as many candidates as he shall see fit
of shares for as many persons as there are directors to be elected or he may cumulate said A shareholder can distribute his votes to diff directors as he
shares and give one candidate as many votes as the number of directors to be elected may see fit
multiplied by the number of his shares shall equal, or he may distribute them on the same
principle among as many candidates as he shall see fit: Provided, That the total number of Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a
votes cast by him shall not exceed the number of shares owned by him as shown in the books corporation must formally organize by the election of a president, who shall be a director, a
of the corporation multiplied by the whole number of directors to be elected: Provided, treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
incorporation or in the by-laws, members of corporations which have no capital stock may more positions may be held concurrently by the same person, except that no one shall act as
cast as many votes as there are trustees to be elected but may not cast more than one vote president and secretary or as president and treasurer at the same time.
for one candidate. Candidates receiving the highest number of votes shall be declared
elected. Any meeting of the stockholders or members called for an election may adjourn from The directors or trustees and officers to be elected shall perform the duties enjoined on them
day to day or from time to time but not sine die or indefinitely if, for any reason, no election is by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
held, or if there not present or represented by proxy, at the meeting, the owners of a majority provide for a greater majority, a majority of the number of directors or trustees as fixed in the
of the outstanding capital stock, or if there be no capital stock, a majority of the member articles of incorporation shall constitute a quorum for the transaction of corporate business,
entitled to vote and every decision of at least a majority of the directors or trustees present at a meeting at

Nudibranch 9

Reason: to ensure effective monitoring of each officer’s Q: What happens when a director. Report of election of directors. and Secretary However. 26. NACPIL V. the vote of 2 is sufficient to pass upon a corporate act o (1) Conviction by final judgment of an offense punishable by imprisonment for a period exceeding 6 years. shall submit to the Securities GR: Yes and Exchange Commission. Q: What is the required number of persons to constitute a quorum? Q: Aside from the corporate secretary or the officer. trustee or officer himself. Does not need to own one share Third Meeting. Treasurer. or a Majority of the directors present of the meeting where there is a quorum (majority violation of this Code committed within five (5) years prior to the date of his election or of the quorum itself) appointment. nationalities and residences of the o EXPN: A president cannot be a secretary. 27. his heirs in case of his death. They cannot attend or vote by proxy in Board Meetings. R: they are elected officers Q: What are the qualifications to be secretary? o EXPN: In a Shareholders or Members Meeting Need not be a director Resident and citizen Assignment: Sec. 26-35 plus 5 cases o Does not need to be natural-born citizen. Q: Can a person hold 2 positions? the secretary. directors. INT’L BROADCASTING CORP Q: What is the test to determine if the assistant manager is a corporate officer? Q: Who are the corporate officers? o Under the Labor code. then he is a recognized corporate officer No. o EXPN: except for the election of officers which shall require the vote of a majority of all the members of the board. if there is board approval to constitute one as a corporate officer. then the Labor arbiter/NLRC has jurisdiction Q: What are the qualifications to become a president? Must be a director (he is the only officer required to be a member of the board) Q: Can directors vote by proxy? Must own at least 1 share GR: No. 2 grounds: Thus. The vote of 3 of them would constitute a quorum. . trustees or officers be disqualified? Ex: there are 5 persons present. Disqualification of directors. or Nudibranch 10 . These are the Prohibited Concurrent Positions. or any other officer of the Q: What does the term ‘quorom’ mean? corporation. trustees and officers. trustee or officer of any corporation. . assistant treasurer or secretary o If the employee is not a corporate officer. and officers elected. 
 Q: How may directors.Within thirty (30) days after the election of the directors. trustees. trustee or officer die. the secretary. he also cannot be a treasurer. 50% of the entire membership Directors or trustees cannot attend or vote by proxy at board meetings. trustee or officer dies? separate functions Should a director. what must be done? No requirements Sec. there are only 3 corporate officers President.No person convicted by final Q: What is the required vote for a corporate act? judgment of an offense punishable by imprisonment for a period exceeding six (6) years. or any other officer of the corporation. Q: What are the qualifications to be treasurer? Q: After election. except for the election of officers Q: What is the required vote for purposes of election? which shall require the vote of a majority of all the members of the board. (not just approval of the human Q: Are they exclusive? resources). or the director. o Ex: VP.which there is a quorum shall be valid as a corporate act. trustees or officers. auditor. who else may report the death? – Majority of the directors fixed in the AOI Sec. trustees and officers of the corporation. shall immediately report Requires persons to be present in order to competently transact business such fact to the Securities and Exchange Commission. Can elect as indicated in the AOI or by-laws additional officers as the need of o The jurisdiction of intra-corporate disputes under PD 902-A has been the nature of the business so require transferred from the SEC to the RTC by virtue of the SRC. resign or in any manner cease to hold office. the names. shall qualify as a director.

This by written notice prescribed in this Code. or if there is no secretary. 28. . A director or trustee so elected to fill a (2/3) of the outstanding capital stock. Removal of directors or trustees. so long as the notice is in writing (1) Provided for under the By-laws (2) Majority vote of the stockholder representing the OCS Q: Do you need to have cause in order to remove a director? No. or. stockholders or members of a corporation for the purpose of removal of directors or trustees. Corporate Secretary. Sec. 30? Publication. o (2) Commission of a violation of the Corpo Code committed within 5 Q: What does Sec. 29. 24 provide with respect to minority stockholders? How is years prior to the date of his election or appointment elections related to removal? Q: Does the proviso apply even if the removal is with cause? Q: Are the grounds under Sec. then removal is valid Q: How is Compensation different from Per diem? Sec 28 provides for only on limitation: Without prejudice to the right of Per diem is an allowance. the call for the Q: What are the requirements if the filling the vacancy is done in a separate meeting? meeting may be addressed directly to the stockholders or members by any stockholder or 2 Basic Requirements: member of the corporation signing the demand. 27 exclusive? o No. as such directors. as such directors. or if the corporation be a non-stock corporation. The proviso only applies if the removal is without cause No. 28 are: o (1) Meeting Sec. however. In no The secretary. when should the vacancy be filled? demand of the stockholders representing or holding at least a majority of the outstanding In the same meeting which provided for the removal. Compensation of directors. rd o (3) 2/3 vote of the stockholders representing the OCS except for reasonable pre diems: Provided.In the absence of any provision in the by-laws fixing o (2) Notice their compensation. must be given by publication or o (2) Meeting called of the specific purpose of filling the vacancy. 29. or case shall the total yearly compensation of directors. Except reasonable per diems Written Notice thru ordinary mail or registered mail or courier mail. how is a vacancy filled in? (memorize) With respect to Shareholders: (4) Q: What is the rule on the removal of a director? With respect to Director: (1) The requisites under Sec. by a vacancy shall be elected only or the unexpired term of his predecessor in office. The absence of a qualification will be a ground for Sec. the directors shall not receive any compensation. Vacancies in the office of director or trustee. It does not o EXPNs: matter. 24 Nudibranch 11 . Removal may be with or without cause: Provided. Q: Under Sec. it is the ‘motivation’ of a director to attend the meetings representation of the minority stockholder under Sec. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice. vote of at least two-thirds (2/3) of the members entitled to vote: Provided. as well as of the intention to propose such removal. must be called by the secretary on order of the president or on the written Q: Assuming that there has already been a vacancy. That such removal A directorship or trusteeship to be filled by reason of an increase in the number of directors shall take place either at a regular meeting of the corporation or at a special meeting called or trustees shall be filled only by an election at a regular or at a special meeting of for the purpose. 30. after previous notice to stockholders or members of the stockholders or members duly called for the purpose. Notice of the time and place of such o (1) Prior notice meeting. . if it be a non-stock corporation. or GR: No. So long as the 3 requisites are present. Treasurer or any other officer. otherwise. or capital stock. That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a Q: Who must call the meeting? majority of the outstanding capital stock at a regular or special stockholders' meeting. How is this done? Q: Are directors entitled to compensation under Sec. upon order of the president. .Any director or trustee of a corporation may be if still constituting a quorum. means that that it was the agenda of the meeting That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. or in the same meeting authorizing the corporation of the intention to propose such removal at the meeting. or any of them. exceed ten (10%) Written demand of majority of the stockholders representing the OCS percent of the net income before income tax of the corporation during the preceding year Q: Before hearing. A special meeting of the increase of directors or trustees if so stated in the notice of the meeting. said vacancies must be filled by the stockholders in a removed from office by a vote of the stockholders holding or representing at least two-thirds regular or special meeting called for that purpose. Refer to the qualifications to become a Director. may be filled by the vote of at least a majority of the remaining directors or trustees. a notice must be transmitted.Any vacancy occurring in the board of disqualification directors or trustees other than by removal by the stockholders or members or by expiration of term. and in either case. on the written demand of a majority of the In another regular meeting or special meeting members entitled to vote.

Dealings of directors. SANTOS rd GR: Directors. The contract is voidable. its contract. That in case of an officer. then he is entitled to his income in the capacity in Sec. or Officers are not personally liable for the corporation’s Q: What if only the 3 requisite is present. none of the exceptions apply. however. Plus 3 more Q: Who is a self-dealing director under Sec. R: Doctrine of Corporate Entity (Separate and distinct) Yes. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. is it possible that the contract be This is a good example of the first exception which makes a director personally ratified? liable Yes. David revise the design? If no one questions the validity of the contract in a proper suit. DAVID Q: What if there is an absence of all the conditions. still Te is officers/director were still made liable for the corporate acts if they fall a self-dealing director who failed to prove that the contract complied with Sec. 31. Trustees. the contract has been previously authorized by the board of When a director. or Trustee solidarily disclosure of the adverse interest of the directors or trustees involved is made at such liable for damages with the corporation (or personally liable for the actions of the meeting: Provided. That the contract is fair and reasonable under the circumstances. 3 grounds under Sec. such contract may be ratified by the vote of the otherwise would have accrued to the corporation. 31.A contract of the which he acted corporation with one or more of its directors or trustees or officers is voidable. as to which equity imposes a disability upon him to deal in his own behalf.WESTERN INSTITUTE OF TECHNOLOGY V. David Doctrine: When a person holds a position in a capacity other than that of a director. 32? Q: What is a watered stock? When a corporation enters into a contract with a director. stockholders or members and other persons. 3. the GR is that it is It is stock issued below its par value VOIDABLE at the option of the corporation EXPN: It could be ratified by the presence of all 4 conditions precedent. (i. it is prejudicial to the interest (implied) of Sps. 32. SALAS the corporate officers were not held personally liable in the Santos GR: Directors or Trustees are not entitled to compensation because there is a case) presumption that they give their services gratuitously to the corp EXPN: Unless it is provided under the by-laws or by majority vote by stockholders MALAYAN representing OCS Same doctrine as the Santos and Sps. That full Q: What are the instances under Sec. the corporate Although the powers were delegable to Te and the contract were ratified. .Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of 1. the corporation can rescind the contract doctrine enunciated in the Santos case. provided that it is accompanied by 2/3 vote of the stockholders representing EXPNs: see above the OCS In the case at bar. That the contract is fair and reasonable under the corporation)? circumstances. it must be noted that The SC ruled that the contract was not fair and reasonable Nudibranch 12 . stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided. corporate officer). trustees or officers with the corporation. trustees or officers. directors. 32. personal or pecuniary interest in conflict with their duty as such directors or trustees shall be 2. Quiambao. in violation of his duty. then it is ratified o To reduce the cost of construction. However. That the presence of such director or trustee in the board meeting in which the contract gross negligence or bad faith in directing the affairs of the corporation or acquire any was approved was not necessary to constitute a quorum for such meeting. trustee or officer attempts to acquire or acquires.e. unless all the following conditions are present: Sec. Where any of the first two conditions set forth in the preceding paragraph is absent. 31 that make a Director. in the he shall be liable as a trustee for the corporation and must account for the profits which case of a contract with a director or trustee. under any of the enumerated exceptions (Sir says this is the same Thus. Officer. That the vote of such director or trustee was nor necessary for the approval of the liable jointly and severally for all damages resulting therefrom suffered by the corporation. This applies in the case of contracts entered into by a Director SPS. Liability of directors. Thus. however.. There was the commission of patently unlawful acts o Doctrine: This is a case where the separate and distinct personality of PRIME WHITE CEMENT the corporation was NOT pierced. can there be ratification? rd actions. and 4. which means that it is valid until annulled Q: What made Sps. at the option of such corporation.

4. on such specific matters within the competence of the board. retirement. including those for the public welfare or for hospital. civic. (4) the amendment or repeal of any resolution of at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the the board which by its express terms is not so amendable or repealable. Said committee may act. thereby obtaining same in accordance with this Code. composed of not less than three members of the board.Every corporation incorporated under this Code corporation or corporations are concerned. Contracts between corporations with interlocking directors. and to or representing at least two-thirds (2/3) of the outstanding capital stock. be applicable. take or grant. as the transaction of the lawful business of the corporation may reasonably and Q: Who is a disloyal director under Sec. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation. To sue and be sued in its corporate name. to be appointed by the Implied from express power board. corporation is substantial and his interest in the other corporation or corporations is merely nominal. unless his act has been ratified by a vote of the stockholders owning subscribers and to sell treasury stocks in accordance with the provisions of this Code. a contract Q: What are the powers of the executive committee? between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided. Written notice of the proposed action and of the of cash dividends to the shareholders. 33? 3. To enter into merger or consolidation with other corporations as provided in this Code. scientific. he shall be subject to the provisions of the preceding section insofar as the latter Sec. time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the Q: What is an executive committee? post office with postage prepaid. That in case of extension of Nudibranch 13 . receive. Disloyalty of a director. To amend its articles of incorporation in accordance with the provisions of this Code. To adopt and use a corporate seal. Give a specific example of a disloyal director officers and employees. cultural. morals. Corporate powers and capacity. sell. and other plans for the benefit of its directors. mortgage and otherwise deal with such real and personal property. 35.Except in cases of fraud. 34? necessarily require. trustees. Q: What are the powers of a corporation? Express Sec. including securities and bonds of other corporations. not contrary to law.Where a director. convey. return/refund the amount to charitable. That no corporation. This provision shall admit members to the corporation if it be a non-stock corporation. by virtue of his office. considered substantial for purposes of interlocking directors. To make reasonable donations. and provided the contract is fair and reasonable under the circumstances. Sec. To establish pension. To purchase.A private corporation may extend or vote of the board. 2. To exercise such other powers as may be essential or necessary to carry out its purpose or Assignment: 35-45 + cases purposes as stated in the articles of incorporation Fourth Meeting. or public policy. or similar purposes: Provided. as may be delegated to it in the by-laws or on a majority Sec. 33.The by-laws of a corporation may create an executive Incidental to its existence committee. 37. profits to the prejudice of such corporation. Executive committee. . the corporation domestic or foreign. lease. One who acquires for himself a business opportunity in which he gains profit but 8. and (5) a distribution members in case of non-stock corporations. (2) the filing of vacancies in the board. The consequence is that such director must account. hold. has the power and capacity: (PIMPS-DO-SCAB) Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be 1. to issue or sell stocks to subscribers and to sell stocks to by refunding the same. and to amend or repeal the himself a business opportunity which should belong to the corporation. or served personally: Provided. shall give donations in aid of any political party or candidate or for rd o EXPN: unless the act was ratified by 2/3 vote of the stockholders purposes of partisan political activity. representing the OCS 10. . 7. That if the interest of the interlocking director in one Q: Can they issue cash dividends? How about stock dividends? No. (3) the amendment or repeal the board of directors or trustees and ratified at a meeting by the stockholders representing of by-laws or the adoption of new by-laws. Q: What is a contract between interlocking directors under Sec. he must account to the latter for all such profits 6. pledge. acquires for 5. except with respect to: (1) approval of any action for which shareholders' shorten its term as stated in the articles of incorporation when approved by a majority vote of approval is also required. subject to the limitations prescribed by law and the Constitution. . which should belong to the corporation 9. To adopt by-laws. In case of stock corporations. Power to extend or shorten corporate term. 36. by majority vote of all its members. 34. . . Q: What was the SC’s ruling as to Te entering into contracts with other companies? Q: What is its composition? Sec. notwithstanding the fact that the director risked his own funds in the venture. and 11.

the amount of capital stock or number of shares of no. Written notice of the proposed increase or diminution of the capital stock or of the incurring. Q: What are the requirements of extending or shortening the corporate term Any increase or decrease in the capital stock or the incurring. any dissenting stockholder may exercise his appraisal right under the (7) The vote authorizing the increase or diminution of the capital stock. and the amount paid by each on his subscription in cash or property. conditions provided in this code. 81 applies to shortening corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided. 37 applies to extension (25%) percent of the amount subscribed has been paid either in actual cash to the Sec. as the certificate of filing may declare: Provided. or served personally. From and after approval by the Securities and Exchange Commission o Valid. (3) If an increase of the capital stock. increase any bonded indebtedness unless approved by a majority vote of the board of Non-stock corporations may incur or create bonded indebtedness. creating or increasing of any bonded indebtedness. creating or increasing of any bonded indebtedness authorized. As to the persons involved (5) The actual indebtedness of the corporation on the day of the meeting. Q: What is bonded indebtedness? par stock thereof actually subscribed. with directors and. two-thirds (2/3) of the the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock. or the members in a meeting duly called for the purpose. and Q: What are the parties to a corporate bond? (1) Borrowing Nudibranch 14 . creating. incurring. or increase the same. Written notice rds Ratification by SH representing 2/3 of the OCS One of the duplicate certificates shall be kept on file in the office of the corporation and the A copy of the amended AOI shall be submitted to the SEC for approval other shall be filed with the Securities and Exchange Commission and attached to the original Q: What if notice is thru LBC or Fedex? articles of incorporation. That the Securities and Exchange Q: What is the appraisal right of dissenting shareholders? Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding Q: Is there appraisal right apply both to extending and shortening? office at the time of the filing of the certificate. created or increased. (PDAF-CART) A certificate in duplicate must be signed by a majority of the directors of the corporation and Q: What is the limitation to this power? countersigned by the chairman and the secretary of the stockholders' meeting. setting forth: Q: What are the ways? (1) That the requirements of this section have been complied with. incur.No corporation shall increase or decrease its capital stock or incur. Reason: it is equivalent to personal service because what you are and the issuance by the Commission of its certificate of filing. note? stock or number of shares of no-par stock allotted to each stock-holder if such increase is for As to the amount the purpose of making effective stock dividend therefor authorized. the capital stock shall stand doing is to merely deputize the personal service to these couriers increased or decreased and the incurring. (6) The amount of stock represented at the meeting. nationalities and residences of the persons It is the corporation indebtedness evidenced by bonds or notes subscribing. (CRAC-PaNuNu) (2) The amount of the increase or diminution of the capital stock. and in of residence as shown on the books of the corporation and deposited to the addressee in the increase? post office with postage prepaid. or the amount of capital Q: What is the difference between bond v. That no Sec.corporate term. the names. creating or increasing of any bonded indebtedness. creating or increasing of any Approval by majority vote of BOD bonded indebtedness shall require prior approval of the Securities and Exchange Commission. must be addressed to each stockholder at his place Q: What are the requirements to increase or decrease capital stock or incur. Power to increase or decrease capital stock. or increasing of any Bonds issued by a corporation shall be registered with the Securities and Exchange bonded indebtedness and of the time and place of the stockholder's meeting at which the Commission. or the incurring. create or the rights of corporate creditors. create. . showing that at least twenty-five (25%) Yes percent of such increased capital stock has been subscribed and that at least twenty-five Sec. further. create or increase bonded decrease of the capital stock shall be approved by the Commission if its effect shall prejudice indebtedness. which shall have the authority to determine the sufficiency of the terms thereof proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered. at a stockholder's meeting duly called for the purpose. As to the term (4) Any bonded indebtedness to be incurred. 38. the amount of capital stock or number of no-par stock subscribed by each.

New issuances arise only when capital stock is increased After such authorization or approval by the stockholders or members. That such pre-emptive right shall not extend to shares member's meeting duly called for the purpose. exchange. not new issuances. Additional issuance of original shares. lease. as its board of Sec. his interest will diluted In non-stock corporations where there are no members with voting rights. in a stockholder's or or an amendment thereto: Provided. abandon such sale. Otherwise. mortgage. in exchange for property in the post office with postage prepaid.Subject to the provisions of existing laws on Mortgage bond illegal combinations and monopolies.All stockholders of a stock corporation shall enjoy directors or trustees may deem expedient. (2) Bondholder None of the exceptions apply in the case at bar (3) Trustee 31/41 (personally liable) o He has the responsibility to secure the interest of shareholders Andrada v. exchange. SEC and assets if thereby the corporation would be rendered incapable of continuing the business Q: Why did SC say that there is no pre-emptive right? or accomplishing the purpose for which it was incorporated. 39. . or to shares to be issued in good faith with the approval of the stockholders place of residence as shown on the books of the corporation and deposited to the addressee representing two-thirds (2/3) of the outstanding capital stock. or in case of non-stock to their respective shareholdings. That any dissenting needed for corporate purposes or in payment of a previously contracted debt. or served personally: Provided. in proportion representing at least two-thirds (2/3) of the outstanding capital stock. Mcleod Q: Give at least 3 kinds of bond Sec. a corporation may. stocks. pledge or otherwise dispose of all or Collateral trust bond substantially all of its property and assets. lease. the board of directors or trustees may. which may be money. 40. nevertheless. . sell. Q: What is a pre-emptive right? When is it available to a shareholder? pledge or other disposition of property and assets. upon such terms and Straight debenture conditions and for such consideration. mortgage. when authorized by the vote of the stockholders pre-emptive right to subscribe to all issues or disposition of shares of any class. It is the right to demand the fair value of the SH share. without further action or approval by the stockholders or class in proportion to their present stockholdings members. lease. Written notice of the proposed action and of to be issued in compliance with laws requiring stock offerings or minimum stock ownership the time and place of the meeting shall be addressed to each stockholder or member at his by the public. Q: What is the purpose of giving pre-emptive right? So the shareholder can retain his interest. exchange. after dissenting from a GR proposed corporate action involving fundamental change in the corporation in 4 exceptions cases provided by law Nudibranch 15 . subject to the rights of third parties under The preferential right of SH to subscribe to all issues or disposition of shares of any any contract relating thereto. o Purpose: to enable SH to retain his proportionate control in the corporation and to retain his equity in the surplus Nothing in this section is intended to restrict the power of any corporation. unless such right is denied by the articles of incorporation corporation. including its goodwill. mortgage. to sell. stockholder may exercise his appraisal right under the conditions provided in this Code. without the authorization by the stockholders or members. Q: How will you deny a shareholder pre-emptive right? Q: What are the requirements? PARDS Q: What are the requisites to the validity of the sale of all or substantially all of the property of the corporation Q: In sale of all or substantially all of the property. in its discretion. by a majority vote of its board of Equipment bond directors or trustees. bonds or other instruments for the payment of money or other property or consideration. is there appraisal right of a dissenting shareholder? MCLEOD Yes. by the vote of at least to two-thirds (2/3) of the members. pledge or Q: When will a corporation have new issuances? otherwise dispose of any of its property and assets if the same is necessary in the usual and When it increases its capital stock regular course of business of said corporation or if the proceeds of the sale or other See illustration in book disposition of such property and assets be appropriated for the conduct of its remaining business. Power to deny pre-emptive right. A sale or other disposition shall be deemed to cover substantially all the corporate property DEE V. Sale or other disposition of assets. the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter Q: When is pre-emptive right not available? into any transaction authorized by this section.

or Q: What are the requirements before a corporation acquire its own shares? o 2. including but not The assets of the corporation as represented by its capital stock are TRUST FUNDS limited to the following cases: Provided. without first paying the corporate debts 2. The creditors may sue Sec. . The board has such discretion Corporation has unrestricted retained earnings The corporation act in good faith without prejudice to the rights of the creditors ISLAMIC DIRECTORATE The conditions of corporate affairs allow it PNB Q: What is the trust fund doctrine? The subscribed capital stock of the corporation is a trust fund for the payment of Fifth meeting. Power to invest corporate funds in another corporation or business or for any other under the provisions of this Code purpose. Power to acquire own shares. That any dissenting stockholder shall have appraisal right as provided in this Code: o To acquire redeemable shares Provided. That where the investment by the corporation is reasonably necessary to o To reacquire shares to effect a decrease in the capital stock of a accomplish its primary purpose as stated in the articles of incorporation. and 3. 42. or acquire its own shares for a legitimate corporate purpose or purposes. The corpo may purchase the fractional shares Reason why fractional shares must be eliminated: they cannot be represented at Q: When do you consider an asset substantial? corporate meetings Sale or other disposition shall be deemed to cover substantially all the corporate assets if Q: Can shareholders buy fractional shares? - o 1. arising out of Any disposition of the corporation’s assets to the prejudice of creditors who unpaid subscription. That the corporation has unrestricted retained to be maintained unimpaired and to be used to pay corporate creditor earnings in its books to cover the shares to be purchased or acquired: o So that there can be no distribution of assets among shareholders 1. and which the corporation may not dissipate. It is a share which is less than 1 corporation share Q: Do all shareholders have such right? Ex: if a SH owns 250 shares and corp declares 25% stock dividend. a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for Q: What are legitimate purposes? which it was organized when approved by a majority of the board of directors or trustees and Under Sec. Shareholders have right to demand payment to the fair value of his share will be 312 and ½ shares. at o To collect or compromise an indebtedness a stockholder's or member's meeting duly called for the purpose. SEC may order the purchase of share at their FMV (to remove the Q: What are the requirements before a corporation can invest in another corporation or deadlock) business? With respect to purposes other than primary purpose: (A-RAMEN) Q: What is a fractional share? o Approval by a majority of the board of directors Nudibranch 16 . and to purchase delinquent shares sold extended their credit on the faith of the corporation’s capital stock is VOID during said sale. however. 41. . or served personally: o To acquire treasury shares Provided. The following are other instances stockholder or member at his place of residence as shown on the books of the corporation not included in the enumeration: and deposited to the addressee in the post office with postage prepaid. The corporation would be rendered incapable of continuing the business. 41: (EC-PaTREC) ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital o To eliminate fractional shares stock. To pay dissenting or withdrawing stockholders entitled to payment for their shares Sec. or by at least two thirds (2/3) of the members in the case of non-stock corporations. o In a close corporation. debts of the corporation which the creditors have the right to look up to satisfy their credits. his total shares Yes. Accomplishing the purpose for which it was incorporated (CLUG-C) Its capital is not impaired Q: Can board change its mind and not push through with the sale? Must be for a legitimate corporate purpose Yes. in a delinquency sale. Written notice of the o To pay the shares of dissenting or withdrawing shareholders proposed investment and the time and place of the meeting shall be addressed to each The enumeration under Sec. where there is a deadlock in the management. the approval of the corporation stockholders or members shall not be necessary. To eliminate fractional shares arising out of stock dividends. 41 is not exclusive. To collect or compromise an indebtedness to the corporation.Subject to the provisions of this Code.A stock corporation shall have the power to purchase the SH directly for the latter’s unpaid subscription.

except: (1) when justified by definite corporate distributed expansion projects or programs approved by the board of directors. reserved or set aside by the board of directors for some corporate purpose or whether local or foreign. such as when there is need for o Example of purpose that are restrictive: special reserve for probable contingencies. free to be (100%) percent of their paid-in capital stock. with respect to investments by a corporation reasonably necessary to corporation accomplish a primary purpose which is stated in the AOI o They are the assets of the corporation Dividends come from profits while profits are the source of dividends Q: Is there a possibility that an investment can be made in order to accomplish a purpose other than the primary purpose and still there is no need for ratification by the Q: Who has the power to declare dividends? stockholders? Board of directors have the power to declared dividends out of unrestricted Yes. if they have not been corporation is prohibited under any loan agreement with any financial institution or creditor. A corporation cannot make a valid contract to pay dividends other than from retained earning or profits and an agreement to pay such dividends out of Q: What is the difference between dividend and profit? capital is null and void EXPN: Nudibranch 17 . Profits are not dividends unless declared or set aside by the Yes. from declaring dividends without its/his consent. declared. o Ratification by the stockholders representing at least 2/3 of the Dividend is that portion of the profits or net earning which the corporation has set outstanding capital stock aside for ratable distribution among the shareholders o Without prejudice to a dissenting stockholder’s appraisal right o They are the assets of the shareholders o Meeting duly called for the purpose o There are generally 3 kinds of dividends: o Prior written notice 1. Corporate expansion Payments for debt and liabilities Q: What is a dividend? Insurance reserves It is that part or portion of the profits of a corporation set aside. Power to declare dividends. 416 of book property. and such consent some other purpose in accordance with managerial. or (2) when the Unrestricted – free for dividend distribution to shareholders. further. o Excess of the profits – Retained Earnings That no stock dividend shall be issued without the approval of stockholders representing not o Negative balance – Deficit less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly Other term: surplus profits called for the purpose.The board of directors of a stock corporation may Q: What is the reason why ratification for stock dividends is required but it is not required in declare dividends out of the unrestricted retained earnings which shall be payable in cash. legal. 43. while stock dividends shall be withheld Retained earnings = assets – liabilities and legal capital from the delinquent stockholder until his unpaid subscription is fully paid: Provided. . in cash dividends? See p. or in stock to all stockholders on the basis of outstanding stock held by them: Provided. Q: What is the meaning of “unrestricted”? Stock corporations are prohibited from retaining surplus profits in excess of one hundred Items which are not set aside or earmarked for the some purpose. Stock dividend Profit means return to capital rather than earning from labor performed or Q: Is investment without the approval of shareholders allowed? Give an example services rendered. Property dividend o Ratification by stockholders or member is not necessary 3. and Bank reserves ordered by the directors to be paid ratably to the shareholders on demand or at a fixed time Q: May dividends be declared out of capital? Purpose: return of investment of the stockholders GR: No. Cash dividend With respect to primary purpose: 2. or (3) when it can be clearly shown that such retention is necessary requirements under special circumstances obtaining in the corporation. That any cash dividends due on delinquent stock shall first be applied to the unpaid Q: What are unrestricted retained earnings? balance on the subscription plus costs and expenses. if the purpose is incidental or reasonably necessary to accomplish the primary retained earnings purpose Stock dividends – requires ratification of shareholders representing 2/3 of the o Ex: Beer manufacturer invests in equipment from another country to outstanding capital stock in a meeting called for the purpose brew beer (See book) Other dividends – mere approval of the Board is sufficient to declare dividends Sec. or contractual has not yet been secured.

A contract between a (3) When it can be clearly shown that such retention is necessary under special corporation and a natural person is called an employment contract. development. from declaring dividends No. exploitation or utilization of o Corp must have sufficient number of authorized unissued shares for natural resources may be entered into for such periods as may be provided by the pertinent distribution to stockholders laws or regulations. of both the managing and the managed corporation.No corporation shall conclude a thirds (2/3) of the total outstanding capital stock entitled to vote: management contract with another corporation unless such contract shall have been o (1) Where a stockholder/s representing the same interest of both the approved by the board of directors and by stockholders owning at least the majority of the managing and the managed corporations own or control more than 1/3 Nudibranch 18 . or (2) When the corporation is prohibited under any loan agreement with any Q: Can a natural person enter into a management contract with a corporation? financial institution or creditor. agreements which relate to the exploration. or by at least two-thirds (2/3) of the members in the case of a non-stock shareholders corporation. The law expressly provides that only a corporation can enter into a without its/his consent. at a meeting duly called for o (2) To utilize a lease or patent the purpose: Provided. 44. . Otherwise. o (1) Dividends from investments wasting assets corporation (ex: corp outstanding capital stock. Ratification by shareholders owning at least majority of the outstanding capital strangers or non-stockholders stock of BOTH: o Reason: only shareholders are entitled to ANY KIND OF DIVIDEND o The managing corporation Q: Could there be a possibility that you pay a stranger thru shares of stock? o The managed corporation o Yes 3. one hundred (100%) percent of their paid-in capital stock Any contract whereby a corporation undertakes or operates all or substantially all EXPN: (SLEx) of the business of another corporation whether such contracts are service (1) When justified by definite corporate expansion projects or programs approved contracts. whether such contracts are called service contracts. then the management contract must be approved by the stockholders of the requirement) managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock o Resolution of the Board declaring the payment of such earning to the entitled to vote. That such service contracts or operating for the purpose. Q: What are the requirements of a management contract? (ARMA-5) NIELSON CASE 1. Q: What are the requirements before dividends may be declared? or (2) where a majority of the members of the board of directors of the managing corporation With respect to Cash Dividends: also constitute a majority of the members of the board of directors of the managed o Existence of unrestricted retained earnings (this is the most basic corporation. or by at least a majority of the members in the case of a non-stock engaged in mining or timber cutting) corporation. whether local or foreign. circumstances obtaining in the corporation. such as when there is need for special reserve for probable contingencies. Power to enter into management contract. however. No management contract shall be entered into for a period longer than five With respect to Stock Dividends: years for any one term. Meeting duly called for the purpose 4. 44) by the board of directors. It is estopped from denying such authority. That (1) where a stockholder or stockholders representing the same o (3) Liquidating dividends interest of both the managing and the managed corporations own or control more than one- third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation. and such consent has not yet been secured. operating agreements or otherwise (Sec. Approval by the shareholders of the managed corporation owning at least two- Sec. Approval by majority of the quorum of the board of directors Stock dividends are payable only to shareholders of the corporation and not to 2. o Existence of unrestricted retained earnings o Resolution of the Board declaring the payment of such earning to the The provisions of the next preceding paragraph shall apply to any contract whereby a shareholders corporation undertakes to manage or operate all or substantially all of the business of o Approval of stockholders representing not less than two-thirds (2/3) of another corporation. it must increase its capital stock to the extent of the corporate earnings to be declared and distributed as Q: What is a management contract? stock dividends It is an agreement whereby a corporation delegates the management of its affairs to another corporation for a certain period of time (not exceeding 5 years) Q: What are the limitations in retaining surplus profits? o The managed corporation is bound by the acts of the managing GR: Stock corporations are prohibited from retaining surplus profits in excess of corporation. or management contract with another corporation. operating the outstanding capital stock at a regular or special meeting duly called agreements or otherwise: Provided.

o Otherwise it will contravene Sec. public board outside the powers of the morals. of the total outstanding capital stock entitled to vote of the managing o Recovery is permitted in most courts by the one who performed and corporation (INTERLOCKING SHAREHOLDERS). but rather partly executed on the basis impliedly forbidden since it is not recognized power of the corporation of estoppel Intra vires acts – done within the legitimate powers of the corporation Ultra Vires Acts Acts beyond the powers of particular It is an act committed outside the object for which a corporation is created as officers or directors defined by the law of its organization and therefore beyond the powers conferred Ultra Vires Acts Acts done w/o complying with certain upon it by law conditions and formalities Q: What are the consequences/effects of an ultra vires act? Ultra Vires Acts Acts involving inexistent contracts Ultra vires contract which is executory on both sides: o Unenforceable by either party This means that neither party can demand the performance Q: Is an ultra vires act subject to ratification? of the obligation With respect to contract or act illegal per se: Ultra vires contract which has been performed on both sides: o No. against law. or not the one who received benefits o (2) Where a majority of the members of the board of directors of the o Other courts – unenforceable and orders the person benefitted to managing corporation also constitute a majority of the members of the return that which is received/pay its reasonable value board of directors of the managed corporation (INTERLOCKING Contracts ultra vires in part: DIRECTORS o If separable. 45. Reason: Such conferred. which provides for the rule that Ultra Vires Acts Illegal Acts the corporate powers of all corporations shall be exercised by the As to nature Not necessarily unlawful. 33 Also. 23. sustain/enforce the part which is not ultra vires and hold See illustrations of these 2 cases in the book invalid the ultra vires part 5. but Unlawful. HYDRO In the case of Interlocking directors. The doctrine of o Neither party can maintain an action to set aside transaction/recover estoppel cannot operate to give effect to a void act Ultra vires contract which has been performed on one side: With respect to contract or act not illegal per se: o Merely voidable and may be ratified or doctrine of estoppel may be enforced Nudibranch 19 .No corporation under this Code shall possess or As to susceptibility of Can be ratified (expressly or Cannot be ratified because exercise any corporate powers except those conferred by this Code or by its articles of ratification impliedly) by the they are void ab initio incorporation and except such as are necessary or incidental to the exercise of the powers so shareholders. acts are merely voidable Q: What is an ultra vires act? As to binding effect Can bind parties wholly or Cannot bind the parties Not within express. exploitation Executed contract – courts will not set aside or interfere with such contracts or utilization of natural resources that may be entered into for such Part executed and part authorized – principle of “no unjust enrichment at the periods as may be provided for by law expense of another” shall apply Executory contract apparently authorized but Ultra Vires – the principal of Q: What are the limitations of a management contract estoppel shall apply Must comply with: (1) Approval of the board. and incidental powers. development. GR: No management contract shall be entered into for a period longer than 5 Executory contract – no enforcement even at the suit of either party (void or years for any one term unenforceable) o EXPN: Contracts which relate to exploration. it is wholly void and inexistent. the contract must comply with the Doctrine of apparent authority requirements of Sec. It cannot be ratified. and (5) Period of contract. there is no other acts total abdication of the powers of the corporation By itself. In other words. implied. (2) Ratification of the SH or (4) Approval of SH if falling under either of the 2 cases. and corp public order Sec. Not expressly. . Ultra vires acts of corporations. public policy. a management contract cannot delegate entire supervision and control over Q: Is an ultra vires act an illegal act? What is the difference between ultra vires act and the officers and business of a corporation to another. it is not necessarily illegal.

within one Q: Why does a corporation need to adopt by-laws? (1) month after receipt of official notice of the issuance of its certificate of incorporation by When a corporation comes to existence upon the issuance of the certificate of the Securities and Exchange Commission. . public utility. banking institution. the following are also required: corporations governed by special laws. 46. calling meetings.Every corporation formed under this Code must. 59 plus cases as well as of stockholders/members towards the corporation and among themselves Sixth meeting. needs to be done is to fill it up. shall be necessary. what articles of incorporation. submitted with the SEC together with the AOI o Q: What specific time should you file or submit the by-laws if you file Notwithstanding the provisions of the preceding paragraph. Adoption of by-laws. shall be filed with the With respect to by-laws adopted PRIOR to incorporation: Securities and Exchange Commission which shall be attached to the original articles of o The by-laws must be signed and approved by ALL the incorporators and incorporation. it does not mean that it is already prepared to do business.e. duly certified to by a majority of the directors Q: What are the requirements for the adoption of by-laws? or trustees countersigned by the secretary of the corporation. (4) To regulate business transactions of the corporation in a particular way Sec. A copy thereof. With respect to by-laws adopted and filed AFTER incorporation In all cases. or of To be organized. etc) directors/trustees and countersigned by the corporate secretary) with The power to adopt by-laws is inherent in every corporation the SEC who will attach the same to the original AOI (but this is only a formal requisite according to an SEC Opinion) Nudibranch 20 . For the adoption of by-laws by the corporation the affirmative in existence. in such case. but it is not yet organized. and control of its affairs in their relation to the inspection of the stockholders or members during office hours corporation and among themselves o Must file a copy of the entire by-laws (certified by majority of the o It includes rules for routine matters (i.the rules of action adopted by a corporation for its internal government them and for the government of its stockholders or members and those having the o Must be kept in the principal office of the corporation subject to the direction. adopt a code of by-laws for its government not corporation. by-laws may be adopted and PRIOR to incorporation? filed prior to incorporation. and (2) There are rules governing the by-laws shall be signed by the stockholders or members voting for them and shall be kept in management of its affairs the principal office of the corporation. the SEC government agency to the effect that such by-laws or amendments are in accordance with shall not accept their by-laws/amendment thereto unless accompanied law by a certification by the appropriate government agency to the effect that such by-laws/amendments are in accordance with law Q: What are by-laws? o Must be signed by the voting stockholders and members voting for By-Laws . The the management of the corporation’s affairs. subject to the inspection of the stockholders or members during office hours. unless accompanied by a certificate of the appropriate o With respect to special corporations governed by special laws. together with the ready-made form which contains AOI and by-law. It may be inconsistent with this Code. educational institution or other special In either of the above cases. or of at least a majority of the amendment thereto of any bank. trust members in case of non-stock corporations company. issuance of the certificate of incorporation by the SEC o The affirmative vote of the stockholders representing at least a The Securities and Exchange Commission shall not accept for filing the by-laws or any majority of the outstanding capital stock. o Provided that ratification must be by the officer or governing body The word “by-law” signifies a rule for future action (that is why it cannot be having authority to make the contract retroactively applied if it will impair existing contracts or vested right) GR: Approval of the Board is sufficient to ratify an ultra vires act Q: What are the functions of by-laws? (SuSoDeRegla) EXPN: Instances which require ratification of stockholders (1) To supplement the AOI (2) To be the source of authority for corporate officers and agents Assignment: (3) To define the rights and duties of the corporate officers and directors/trustees Up to Sec. by-laws shall be effective only upon the issuance by the Securities and Exchange o The by-laws must be adopted within 1 month after receipt of notice of Commission of a certification that the by-laws are not inconsistent with this Code. Since the SEC already provides for a incorporators and submitted to the Securities and Exchange Commission. it is required that: (1) There are executive officers charged with at least a majority of the members in case of non-stock corporations. management. vote of the stockholders representing at least a majority of the outstanding capital stock. such by-laws shall be approved and signed by all the Upon filing of the AOI. building and loan association. insurance company.

this Code. By-laws contrary to law notice as to the by-laws of VGCCI and thus. CHINA BANK V. There is a conclusive presumption that they know the laws within the required period? provisions of the corporate by-laws by the fact of their being No. Q: Why does this item not provide for the “PLACE” whereas in the 1 st particular individuals (or not discriminatory) item it does? o A by-law disqualifying a person from being elected as a director if he is i. the already a director in a competitor corporation is VALID if it equally place of meeting may be ANYWHERE in or out of the applies to all stockholders (Gokongwei v. it is not mandatory. Subordinate employees without actual knowledge of the by- By failing to submit its by-laws within the prescribed period. The city/municipality where the principal office (6) Must be reasonable of the corporation is located. the right cannot impair the obligation of existing rights such as the right to security Q: What must be contained in the by-laws? Give at least 5 of tenure of regular EEs under the LC Sec. place and manner of calling and conducting regular or special meetings for more than 1 year. cannot be dismissed without just or authorized 2. CA) Q: Why did the SEC have jurisdiction? (2) Must not be contrary to morals and public policy o SC ruled that the interpretation of the by-laws (3) Must not impair existing obligations of contracts or rights is clearly an intra-corporate dispute which may o SALAFRANCA V. Whereas the place of a SH/M’s meeting is (5) Must be consistent with the charter or AOI either: o By-laws are subordinate to the charter and AOI 1. However. The principal office of the corporation Nudibranch 21 . CA Q: What are the elements of valid by-laws? (LaMOG-CR) Q: So who has the better right to the stock (1) Must not be contrary to existing law and inconsistent with the Corporation certificate? Code (See Sec. or 2. the failure may be merely with the merely operate as internal rules among the stockholders imposition of an administrative fine EXPN: unless they have notice/actual or constructive knowledge. it was not given Directors contrary to Sec. 47. and the articles of incorporation. Contents of by-laws.Subject to the provisions of the Constitution. If he remains actually incorporation does not automatically dissolve the corporation ignorant of the provisions. The time and manner of calling and conducting regular or special meetings of the cause under the Labor Code stockholders or members. a by-law is a continuing rule for the gov’t of the Upon the issuance SEC of a certification that the by-laws are not inconsistent with corporation and the individuals composing it the Corporation Code As to members and 1. The time. They have the force of contract between the members shareholders themselves Q: Is the 30-day period mandatory? What is the effect if the corporation does not file the by. CA 3. he does so at his peril o Reason: It is merely a ground for suspension or revocation of its charter As to corporate directors 1. Reason: by-laws Under the rules and regulations of the SEC. 23 of the Corpo Code. Such regular employee of the directors or trustees. other Q: What right was violated? special laws. (4) Must be general and uniform in their operation and not directed against a. Failure to file the by-laws within 30 days from such is charged with notice of by-laws. a private corporation may provide in its by-laws The security of tenure which is granted to an for: (TiTiQuoP-D-Ho-Ma-PeStO) employee who was become regular after working 1. They are bound by and must comply with them unless and hearing until they are changed o This was the doctrine cited in LOYOLA V. is cannot attain validity on the basis of long practice nor give rise to any not bound thereby vested rights (Grace Christian High School v. The reason is because with respect to a board meeting. As to third persons GR: They are not bound to know the by-laws. Q: Explain the binding effect of the by-laws. 47) o China Bank because at the time it entered into o SC declared invalid the automatic and permanent seat in the Board of the transaction with the SH. PHILAMLIFE be resolved thru the technical expertise of the The right to amend the by-laws lie solely in the discretion of SEC the employer corporation. 22(2)) or imposition of administrative fine after notice and and its officers 2. a corporation can be laws are not bound considered as a de facto corporation which cannot be collaterally attacked. They have force and effect of laws of the corporation (See Sec. 2. . SEC) Philippines. Q: When do by-laws take effect? Until repealed or amended.

shall so trustees and shall be filed with the SEC the same to be attached to the vote at a regular or special meeting. is a 8. The form for proxies of stockholders and members and the manner of voting trustees to amend or repeal any by-laws or adopt them. the manner of issuing stock certificates. shall so vote at a regular or special 7. such meeting is necessary. still it is required. new by-laws shall be considered as REVOKED 5. The owners o A meeting is required (Whether in majority vote. there is no reason why a Sec. Reason: Since the power to make by-laws implies the power to alter. Q: In the second way that by-laws may be amended. by a certification by the appropriate government agency to the effect duly certified under oath by the corporate secretary and a majority of the directors or that such by-laws/amendments are in accordance with law trustees. may amend or repeal any Q: What is the difference between by-laws and resolution? by-laws or adopt new by-laws Resolution By-Laws o (2) The owners of 2/3 of the outstanding capital stock or 2/3 of the Nature and subj-matter Mere declaration of the Permanent rule of action of members in a non-stock corporation may delegate to the board of corporate will. or of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a revocation of delegated authority. applies to a the conduct of corporate directors or trustees the power to amend or repeal any by-laws or single act of the corporation affairs adopt new by-laws. and a copy thereof. That any power delegated to the board in the office of the corporation of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be o A copy of the amended or new by-laws shall be duly certified under considered as revoked whenever stockholders owning or representing a majority of the oath by the corporate secretary and a majority of the directors or outstanding capital stock or a majority of the members in non-stock corporations. majority of the outstanding capital stock or a 6. at a regular or special meeting duly Q: What are the formal requirements? called for the purpose. than directors or trustees. meeting required? 9. the SEC Whenever any amendment or new by-laws are adopted. The time for holding the annual election of directors of trustees and the mode or majority of the members in non-stock manner of giving notice thereof. and the owners of at least a majority of the outstanding capital stock. duties and compensation of directors or trustees. 48. 46 and to the original articles of incorporation and original by-laws. Although there is no express requirement of 10. such amendment or new by-laws shall not accept their by-laws/amendment thereto unless accompanied shall be attached to the original by-laws in the office of the corporation. or at least a such power majority of the members of a non-stock corporation. officers and whenever stockholders owning or representing a employees. original articles of incorporation and original by-laws. shall be filed with the Securities and Exchange Commission the same to be attached Although this requirement is embodied under Sec. The power delegated to the board of directors or 4. it follows that the latter power has the same Exchange Commission of a certification that the same are not inconsistent with this Code limits as the former power Q: How may by-laws be amended/repealed or new by-laws be adopted? Q: When do the amended or new by-laws take effect? There are 2 ways: The amended or new by-laws shall only be effective upon the issuance by the o (1) By majority vote of the board of directors or trustees AND the Securities and Exchange Commission of a certification that the same are not owners of at least a majority of the outstanding capital stock. by a majority vote meeting is not also required in the delegation of thereof. Reason: if revocation of the delegated power requires a meeting. The required quorum in meetings of stockholders or members and the manner of Q: When is the delegated power revoked? voting therein. and Yes. Such other matters as may be necessary for the proper or convenient transaction a meeting in this case. The penalties for violation of the by-laws. In the case of stock corporations. Amendments to by-laws. or at least inconsistent with this Code a majority of the members of a non-stock corporation. 3. delegation. or enact The amended or new by-laws shall only be effective upon the issuance by the Securities and new ones.The board of directors or trustees. meeting is required) non-stock corporation may delegate to the board of directors or trustees the power to amend o The amended or new by-laws shall be attached to the original by-laws or repeal any by-laws or adopt new by-laws: Provided. at a regular or special meeting duly called for the purpose. Rule in case of conflict Subordinate Prevails over resolution Nudibranch 22 . corporations. The qualifications. not in 48. The manner of election or appointment and the term of office of all officers other meeting. o With respect to special corporations governed by special laws. may amend or repeal any by-laws or adopt new by-laws. of its corporate business and affairs. amend. .

Who shall preside at meetings. otherwise. provided all the stockholders or members of the As to purpose Constitutes the charter of Merely rules and regulations corporation are present or duly represented at the meeting. on any date in April of every year as determined by the board of directors or trustees: o Regular Provided. That at least one (1) week written notice shall Q: What is the importance of the meeting? be sent to all stockholders or members.The president shall preside at all meetings of the Sec. prior thereto) Special meetings of the board of directors or trustees may be held at any time upon the call of As to Amendment Amended by majority vote Amended by majority vote of the president or as provided in the by-laws. may issue an order to the petitioning stockholder or member directing him to call a GR: A meeting is always needed meeting of the corporation by giving proper notice required by this Code or by the by-laws. either expressly or impliedly.Regular meetings of Q: What are the kinds of meetings? stockholders or members shall be held annually on a date fixed in the by-laws. Q: For example. unless otherwise provided by the by-laws. As to nature Condition precedent to Condition subsequent. . Notice of any meeting may be waived. the Securities and Q: Is there Any instance wherein a meeting is no longer required? Exchange Commission. A director or trustee may waive this requirement. Q: What is the difference between by-laws and AOI? AOI By-Laws Notice of meetings shall be in writing.Regular meetings of the incorporation after certificate of board of directors or trustees of every corporation shall be held monthly. unless the by-laws provide otherwise. or if not so SH/M meeting fixed. unless a different period is required by D/T meeting (or Board Meeting) the by-laws. .Stockholders' or Muntinlupa? members' meetings. time and place of the meeting must be sent to every director or trustee at As to delegation of power to Cannot be delegated May be delegated to the amend Board by owners of at least least one (1) day prior to the scheduled meeting. and exercise their right to vote in appropriate case under the Corpo Code. shall be valid even if the charter meeting be improperly held or called. upon petition of a stockholder or member on a showing of good cause Yes. 51. if within the powers or authority of the corporation. stockholders. That Metro Manila shall. o EXPN: With respect to the amendment of the AOI. Regular and special meetings of stockholders or members.Meetings of directors. trustees. Sec. be considered a city or municipality. Notice of regular or special meetings stating the date. by any stockholder or member. or members may directors or trustee as well as of the stockholders or members. . . mere WRITTEN The petitioning stockholder or member shall preside thereat until at least a majority of the ASSENT is required stockholders or members present have been chosen one of their number as presiding officer. whether regular or special. unless otherwise provided in the by-laws. can the SH meeting be held in Sec. its corporate existence absence is only a ground for All proceedings had and any business transacted at any meeting of the stockholders or revocation/suspension of members. unless the by-laws provide be regular or special. o Regular o Special Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided. That written notice of regular meetings shall be sent to all stockholders or members o Special of record at least two (2) weeks prior to the meeting. unless the by-laws incorporation (but may be provide otherwise. So that the persons SH/M or D/T may act upon certain corporate matters. 49. expressly or impliedly. discuss issues. the corporation of the corporation As to time of execution Executed before Executed within 1 month Sec. Whenever. for purposes of this section. by the Board AND the Board AND owners of at stockholders representing least majority of OCS Meetings of directors or trustees of corporations may be held anywhere in or outside of the 2/3 of OCS Philippines.Necessity of approval by SEC No need for SEC approval Subj to the approval of SEC the principal office of the corporation is located. 53. the principal office is located in Las Pinas. therefor. . however. there is no person authorized to call a meeting. and if practicable in the principal office of unless required by law the corporation: Provided. Kinds of meetings. Place and time of meetings of stockholders or members. shall be held in the city or municipality where Nudibranch 23 . and the time and place thereof stated therein. 2/3 of the OCS Sec. 50. 54. Regular and special meetings of directors or trustees. for any cause.

there is no Nudibranch 24 . 1. it is still VALID. As otherwise Who may call 1. Must be issued by one who has authority to issue it STOCKHOLDERS/MEMBERS MTG. Metro Manila shall be considered Provided. or by an officer entrusted with the where the principal office of the unless the by-laws provide otherwise management of the corp. or 2.A. corporation is located. prior to the Waived by the D/T Resolution authorizing him to do so and such is submitted to the court unless: 1. SEC memorandum no. who shall preside? Notice Written notice Written notice Written notice must be given to every must be given to must be given Director or Trustee at least 1 day prior EXPERT TRAVEL SH/M at least 2 to SH/M at to the meeting. certification or verification of non-forum shopping in the absence of a Board the meeting. or 2. board at ANY 4. Must state date. However. these modes cannot be used to substitute a provided in by. Otherwise A foreign corporation’s resident agent who is a lawyer is not authorized to sign the weeks prior to least 1 week provided under the by-laws. (Sabi ni sir take a look at these) Requisites of notice of meeting: (AW-DaBus-TiLaw) 1. time. R. municipality A stockholder may petition before the SEC when there is no person authorized to call the meeting and if the SEC finds good cause. Deemed laws provide or 1. 1. In the absence of such provision the Board in by-laws. provided in by- o Bases: Waived by the laws. Q: Can the SEC call for a meeting? be considered a city or No. On a date ANY TIME: unless the by. determined by 2. means to conduct business. As provided 2. it may only make an order directing SH to hold a provided: meeting 1. The SEC will not call the meeting. 8792 – E-Commerce Act SH/M Waived by the 2. Upon the call of 6. The proceedings had and any business transacted are within the Q: Is there any instance wherein a SH/M may preside in a meeting? powers or authority of the Yes corporation (not ultra vires). Yes. The SC recognized teleconferencing. A petitioning SH/M may make the practicable in the PRINCIPAL OFFICE call upon the order of the SEC of the corporation: whenever for any cause. it may be called by a D/T Place GR: (1) In the CITY OR MUNICIPALITY ANYWHERE in or out of the Philippines. On any date in 2. unless: 1. or 2. Must be in writing Time Regular meeting Special Regular meeting Special meeting 3. With respect to the place of SH/M meeting. or necessary or otherwise the president or laws 2. That Metro as a city Manila shall. TIME: 5. meeting. ALL the SH/M of the corporation o No are present or duly represented at the meeting Q: If the by-laws are silent. videoconferencing. Person/s designated in by-laws By the President. and place unless otherwise provided in by- those held Meeting those held by the those held by the laws ANNUALLY: those held at board MONTHLY. for purposes of this section. Must state business to be transacted 1. Otherwise written board resolution laws. and Q: So any ordinary SH/M may preside? 2. DIRECTORS/TRUSTEES MEETING 2. unless otherwise April of every in the by-laws provided in the by. it will direct the petitioning SH/M EXPN: If the meeting be improperly to call the meeting held or called. have authority to call SH/M provided in the by-laws year as laws meeting. Must be sent at a certain time before scheduled fixed in the by. audio-conferencing as a Otherwise unless: 1. Must comply with any other requirements prescribed by law or by- laws. 15 – guidelines to be complied with SH/M a. and (2) if 3.

. Quorum in meetings. in order to vote the same. With respect to non-stock corporations: laws (but not less than 2 SH/M may constitute a quorum) o GR: Each member shall be entitled to one vote EXPN: The right of the members of any class to vote may be Q: What happens when some of the shareholders or members walked out in the middle of limited. . and administrators. The petitioning SH/M shall written proxy. the consent of all the co-owners shall be (in rel. people walked out leaving less than the majority. 5. Held at the proper place 2. to #3 of “Who may call” necessary. A special meeting for removal of minority group cannot prevent corporate action by walking out D/T may be called by the secretary or by SH/M Seventh meeting.Unless otherwise provided for in this Code or in the by-laws. receivers. 56. administrators. the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders. A 4. President presides the meetings President presides the meetings unless preside unless the by-laws provide the by-laws provide otherwise Sec. any one of the joint owners Requirements (PDP-NoQ) can vote said shares or appoint a proxy therefor 1. A SH/M may preside in a given by the pledgor or mortgagor such right in writing which is recorded on the appropriate temporary capacity where the corporate books. preside until at least a majority of the SH/M present have chosen one Sec. Who may 1. Called by the proper person 4. person authorized to preside is absent Executors. unless there is a written proxy. and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members without need of any 3. Voting in case of joint ownership of stock. what is the effect? AOI or by-laws (Sec. 89) Nudibranch 25 . mortgagors. broadened or denied to the extent specified in the the meeting and there is no more quorum. the SH participates in the management of the stock or a majority of the members in the case of non-stock corporations corporation o It is the SH’s “supreme right and main protection” Q: What is quorum? o It is an incident of ownership or the property in the stock of which the It is that number of members of a body which when legally assembled in their SH cannot be deprived without his consent and he may vote it as he proper places will enable the body to transact its proper business chooses. Held at the stated date and appointed time or a reasonable time Sec. signed by all the co-owners. not the OCS while in non-stock.Treasury shares shall have no voting right as long thereafter as such shares remain in the Treasury 3. it is majority of the o The vote is based on the number of shares represented. . Right to vote of pledgors. 52. .In case of shares of stock owned jointly of their number as presiding officer by two or more persons. even if some meeting. 57.In case of pledged or otherwise mortgaged shares in stock corporations. Voting right for treasury shares. the proceedings will be valid. person authorized to call the Once there is a quorum at the time the meeting is called to order. unless the pledgee or mortgagee is expressly 2. public policy or fraudulently o GR: A quorum shall consist of the SH representing a majority of the OCS o This right may be lawfully denied under the AOI/By-laws or a majority of the member of a non-stock corporation o The right to vote does not impose a legal duty to vote So with respect to Stock corporation. There must be previous notice Q: Explain the right to vote. There must be a quorum With respect to stock corporations: o Voting is based on the number of shares owned and not on the Sec. 55. That when the proxy shares are owned in an "and/or" capacity by the holders thereof. it is the number of the members of number of SHs present the corporation o A director has the right to vote as a director or as a SH o EXPN: Unless otherwise provided for in the Corpo Code or in the By. a number of stockholders or per capita quorum shall consist of the stockholders representing a majority of the outstanding capital o Thru the right to vote. authorizing one or Allowance of Proxy is allowed Proxy is not allowed some of them or any other person to vote such share or shares: Provided. although not in the manner or for the purposes contrary to With respect to Stockholders or members meetings: law.

Indirectly. the gov’t has the authority vote: authorizing one or some of them or any other person to vote such 1. receivers. Non-voting shares – the owners may vote in certain instances: A SH/M may vote: o When law provides that 2/3 or majority vote of OCS “entitled to vote”. Expressly given by the pledgor or mortgagor such right in writing necessitating their continued sequestration and voting 2. Unless there is a written proxy. Provided. meetings of stockholders Q: How do you know if PCGG may vote sequestered shares? Q: So what is the effect of a pledge on the right to vote on a #1 EXPN: The 2-Tiered Test: SH who pledges his shares? 1. Where gov’t shares are taken over by private share or shares persons or entities which registered them in their 2. 1-8 By executor. and other legal representatives public funds or prima facie public funds or at least funds duly appointed by the court may attend and vote in behalf of the affected with public interest even though the case is still stockholders or members without need of any written proxy. that when the shares are owned in an "and/or" own names. 24) Delinquent shares – not entitled to vote Treasury shares – have no voting rights so long as they remain in treasury Q: How about parents. Q: Who must record this authority? Sandiganbayan i. The PLEDGOR o REPUBLIC V. Directly (in person) the excludes non-voting shares o 2. Thus. administrators. The gov’t is o GR: The pledgor or mortgagor shall have the right to attend and vote at merely a conservator and cannot vote. Where the capitalization or shares that were vote said shares or appoint a proxy therefor acquired with public funds somehow landed in private hands Q: Explain the manner of voting. only voting shares are entitled to vote By means of a proxy EXPN: Holders of non-voting shares may vote in cases By a trustee under a trust agreement provided in Section 6. WON there is prima facie evid showing that the shares No effect at all. administrators. 6. o 1. can the vote for the minor children’s shares? o Reason: these shares are not part of the OCS. are ill gotten wealth and thus belong to the State o EXPN: Unless the pledgee or mortgagee is 2. receivers. 1. COCOFED Voting rights for shares a deceased stockholder #2 EXPN: Public Charter Exception: The 2-tiered test does o Exercised only where a legal representative has been appointed not apply in cases of sequestered shares purchased with o Executors. o To give voting rights to these shares could enable the directors to Q: Who are entitled to vote? Who are not entitled to vote? prolong their stay in office against the wishes of the holders of majority It depends upon the kind of share. parents are considered JOINT ADMINISTRATORS of the over them are to reissue them for a valuable consideration property of the minor children Nudibranch 26 . Which is recorded on the appropriate corporate books. belong to the government although the shares o EXPNs: are in the name of Eduardo Cojuangco. of the shares. coco levy funds partake o GR: In order to vote the same. by the PCGG while the main issue is pending with the a. WON there is an immediate danger of dissipation thus 1. through a representative (PTA) o GR: In all corporate acts. and capacity by the holders thereof. signed by all the co-owners. Voting shares – Only the legal owners of shares have the right to attend and vote Fractional shares – not entitled to vote in a corporate meeting Unpaid shares – if they are not delinquent. par. The only right a corp has Yes. any one of the joint owners can 2. nos. Under the family code. the consent of all the co-owners shall be the nature of taxes. but may be denied under the AOI Voting may either be straight or cumulative (Sec. The beneficial ownership necessary. pending Shares jointly owned (effect by 2 or more persons own shares jointly) In the case of COCOFED. they are entitled to vote Sequestered shares Escrow shares – not entitled to vote before fulfillment of the condition imposed o GR: the registered owners of shares sequestered by gov’t (PCGG) or Pledged or mortgaged shares their duly authorized representatives or proxies may vote. or other legal Disqualified shares – not entitled to vote representatives duly appointed by the court Preferred and redeemable – entitled to vote.

58 A SH/M may appoint anyone he sees fit to represent him. have always been considered Q: What are the requisites for a valid proxy? revocable. No proxy Q: Who may be appointed as a proxy? shall be valid and effective for a period longer than five (5) years at any one time No limitation under Sec. there is no proxy. It must include all indispensible parties. Proxies shall in writing. No proxy shall be valid and effective for a period longer than 5 years at any time 1. Such right cannot be Q: What is proxy? restricted by the by-laws (otherwise. unless coupled with an interest F5-SWV 1.Stockholders and members may vote in person or by proxy in all meetings 5. Continuing Proxy – authority given is to represent the SHs at any and all regular and special SH’s meetings unless the SH revokes the same CHUA v. Unless otherwise provided in the proxy. Proxies shall be in writing 3. As may be provided for in its by-laws and filed before the scheduled meeting with the corporate secretary. it shall be valid only for the meeting for which it is intended. 56) derivative suit nor was the corporation impleaded as a party. Voting by trustee under voting trust agreement (Sec. Q: May proxies be revoked? Yes. For convenience or favor to the distant and indifferent SH behalf of the corporation 2. the petition was for certiorari and was not alleged to be a 2. It must be alleged that it is a derivative suit. Who may represent him? the manner in which the vote shall be cast No one. Conduct o Oral proxies are not allowed 5. meaning that the 3. It may be denied with respect to non-stock corporations. 58. General Proxy – confers a general discretionary power of attorney to attend and Q: What are the powers and rights of a trustee? vote at an annual meeting “with all the powers the undersigned would possess if Sec. . 3. Election of the Board of D/T (Sec. . but act for the first the same must not be discriminatory Used to apply to the holder of the authority or person authorized by an absent D/T cannot attend or vote by proxy in Board Meetings SH/M to vote for him at a SH/M’s meeting Nature of proxy: purely personal. 3. Voting in case of joint ownership stock (Sec. Enables those who do not wish to attend a SH/M’s meeting to protect their corporation itself must be impleaded interest by exercising their right to vote thru representative A derivative suit may be filed by a SH on behalf of the corporation as the real party 4. Assured the presence of a quorum o 2. 89) Sec. Verbal communication 4. Specific Proxy – the authority granted is merely for a particular meeting on a Q: What is the remedy of the heirs who want to vote? specific date o They must file an action for partition 4. it shall be valid only for the meeting Q: What are the rules on revocation? which it was intended Last proxy given revokes all previous proxies Where proxies are undated. 24) In the case at bar. no trustee. 59. How? Explain the rules Proxies. Q: What are the instances wherein the right to vote by proxy may be exercised? The SH may enforce a corporate cause of action thru a derivative suit 1. Unless otherwise provided in the proxy. Limited Proxy – restricts the authority to vote specified matters only and direct representative. Pledge or mortgage of shares of stockholders or members. meaning it is filed on 1. Proxies. 59) 4. signed by the stockholder or member 6. even those with irrevocable terms. such provision would be void) with respect to nd Written authorization given by one person to another so that the 2 person can Stock corporations.Q: What if the person represented is not a minor. Filed before the scheduled meeting with the corporate secretary Q: How may revocation be done? 2. Formal notice 3. It shall be signed by the SH/M concerned 2. Voting trusts. Secure voting control or management control in corporation in interest only when the Board of directors do NOT file a case. Reason: the power to sue in the name of the corp resides with the board. The right to appoint is an incident of ownership. no legal 2. CA The 2 requirements of a derivative suit are: Q: What is the purpose of proxy? o 1. and he dies. the postmark dates become important Q: What are the kinds of proxy? 1. Voting by members in a non-stock corporation (Sec.One or more stockholders of a stock corporation may personally present” create a voting trust for the purpose of conferring upon a trustee or trustees: Nudibranch 27 .

said voting trust may be for a period exceeding five (5) Assure continuity of policy and management especially of a new corporation years but shall automatically expire upon full payment of the loan. VOTING o When is it required that the majority vote of the board + majority vote Q: What is a voting trust agreement? of SH representing 2/3 of the OCS be obtained? It is an agreement whereby a SH of a stock corporation confers upon a trustee/s o When may preferred or redeemable shares vote? the right to vote and other rights pertaining to the shares for a period not 5 years at any time ESSAY It is not governed by the law on agency. Q: What is the difference between voting trust agreement and proxy? o Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust MIDTERM EXAM agreement. said agreement is ineffective and Prevent a rival concern from acquiring control of the corp unenforceable. The court ruled in ECE’s favor. Unlike agency. To carry out a proposed sale of the corp’s assets and to facilitate dissolution o 2. FHM took possession of the land. MULTIPLE CHOICE o No voting trust agreement shall be entered into for the purpose of VOTING TRUST AGREEMENT circumventing the law against monopolies and illegal combinations in o What are valid purposes? restraint of trade or used for purposes of fraud. That both the Subject to examination by the SH transferor and the trustee or trustees may exercise the right of Right automatically expired at the end of the period. A desirous of attracting investors voting trust agreement must be in writing and notarized. That in the Unified control of the affairs of the corporation and consistent policy and case of a voting trust specifically required as a condition in a loan management especially of a new corporation desirous of attracting investors agreement. all rights granted in a voting trust agreement kinds of trust pools/arrangements? shall automatically expire at the end of the agreed period. it shall be noted that the To aid a financially embarrassed corp to obtain a loan and protect its creditor transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. inspection of all corporate books and records in accordance with the provisions of this Code. The certificate or certificates of stock covered by the voting trust To enable 2 holding companies to operate jointly a corporation controlled by them agreement shall be canceled and new ones shall be issued in the name To effect a plan for reorganization of a corp in financial difficulty or in bankruptcy of the trustee or trustees stating that they are issued pursuant to said proceedings agreement. notarized. The right to vote and other rights pertaining to the shares for a Q: What are the purposes of voting trust agreement? period not exceeding five (5) years at any time: Provided. o What is the difference between a voting trust agreement and all other o Unless expressly renewed. a voting trust agreement is ECE had a lot registered in its name. TELECONFERENCING o 4. specifying the terms and conditions to examination by any stockholder of the corporation in the same Certified copy must be filed with the Corporation and SEC manner as any other corporate book or record: Provided. which shall be transferable in the same manner Not used to circumvent the law against monopolies/illegal combinations in and with the same effect as certificates of stock. otherwise. A certified copy of such Vest and retain the management of the corporation in the persons originally agreement shall be filed with the corporation and with the Securities promoting it and Exchange Commission. and thereupon shall be bound by all the provisions of said agreement. ECE filed a not revocable at will complaint against FHM. The voting trustee or trustees may vote by proxy unless the o Can you conduct a SH meeting thru teleconferencing? agreement provides otherwise. In the books of the corporation. restraint of trade o 3. and the o Something about liability for damages voting trust certificates as well as the certificates of stock in the name DIVIDEND of the trustee or trustees shall thereby be deemed canceled and new o How do you compute a guaranteed cumulative dividend? certificates of stock shall be reissued in the name of the transferors. The voting trust agreement filed with the corporation shall be subject Must be in writing. o 1. A writ of execution was filed against FHM to deliver. Q: What are the limitations (requirements) of a voting stock agreement? o The trustee or trustees shall execute and deliver to the transferors Not more than 5 years at any 1 time voting trust certificates. FHM bought a substantial amount of the shares from Nudibranch 28 . and shall Enable owners of majority of the stock of the corp to control the corp specify the terms and conditions thereof.

an event which may or may not happen. NLRC PNB v. the assests of the corporation Q: What is a subscription contract? Nature? EXPLAIN Any CONTRACT for the acquisition of unissued stock in an existing corporation or Identity doctrine a corporation still to be formed shall be deemed a SUBSCRIPTION Instrumentality rule Unissued stock = stock never been issued (original issuance or the increase of Alter ego doctrine capital stock) Trust fund doctrine No required form Business judgment rule By accepting a stock certificate. Subscription contract. TITLE VII Nudibranch 29 . It is an absolute subscription. CA indivisible contract Nature: The subscription contract is a consensual contract that is perfected upon Cruz v. make payment). Northeastern stock and transfer book. or acting as SH (i. Conditional subscription – SUBJECT TO A CONDITION. it continues to be Western Institute v. . uncertain event. 60. participate in SH meeting. FHM refused to obey the writ and argued that there its acquisition of shares STOCKS AND STOCKHOLDERS was a supervening event the effect of which makes FHM not liable. No pre-emptive rights on additionally issued shares Sec.e. and in case of increase in ACS) even before full payment 3. Dalisay meeting of the minds of the parties . ECE. Andrada Q: What are the kinds of subscription contract? (Give an example for each) Salafranca v. o Q: When does a subscriber become a SH? Upon acceptance by the corporation of the subscriber’s offer or by acceptance of subscriber of the corporation’s offer (unless the agreement or law provides otherwise. CA constitutes as a binding contract among subscribers (See: Sec. Pre-incorporation subscription – entered into BEFORE INCORPORATION. Subscription with a special term – where the corporation AGREES TO DO SOMETHING. that is. Philamlife (PrePo-CAS) Chua v. (Subscriber becomes liable on subscription and acquires rights of a SH from time the subscription is accepted) 5. From that time. a person becomes a SH even without express contract DOCTRINES The subscription contract may cover one or more shares. notwithstanding the fact that the parties refer to it as a purchase or Ratification of 2/3 of SH is required under Sec. 61) 2. The name of the subscriber is recorded in the Seventh day adventist v. Salas a subsisting liability that is legally enforceable Santos v. It Lyceum v. the fulfillment of which NOT being a condition precedent to liability FINALS of subscriber or acquisition of rights as SH. 40 if sale of all or substantially all some other contract. Absolute subscription – NOT SUBJECT TO ANY CONDITION.Any contract for the acquisition of unissued stock in an Non-filing the by-laws within 30 days does not make a corporation a de facto existing corporation or a corporation still to be formed shall be deemed a subscription within corporation the meaning of this Title. CA 1. Post-incorporation subscription – entered into AFTER INCORPORATION for the acquisition of unissued stock o It shall be deemed a subscription notwithstanding the fact that the parties refer to it as a purchase or some other contract. Still. Until the stocks are fully paid. (The subscriber becomes a SH only upon fulfillment of condition) 4. it remains an Francisco v. which may be a past event unknown to the parties or a future. the subscriber becomes a SH of record Grace Christian Highschool and is entitled to all rights of a SH.

If the court will interfere. and which the corporation may not dissipate.even if subscribers have legal standing to sue for rescission of 4. by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose. the subscription for the payment of debts of the corporation which the creditors have the right to becomes revocable. . Actual cash paid to the corporation. Amounts transferred from unrestricted retained earnings to stated capital. the by-laws. That no pre. stock subscriptions are in the nature of a Trust Fund since they are to be RULE 1: It is irrevocable for a period of 6 months from the date of subscription. Previously incurred indebtedness of the corporation. it is mandatory. The SEC shall not accept the AOI of Generally. actually received by the corporation and necessary or Q: What should have been the proper remedy in this case? convenient for its use and lawful purposes at a fair valuation equal to the par or issued value o Specific performance of the stock issued. incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided. Nudibranch 30 . the creditors may do so. Furthermore. or in the absence thereof. subscription contract based on breach of contract. 61.the subscribed capital stock of the corporation is a trust fund o Yes. The issued price of no-par value shares may be fixed in the articles of incorporation or by the incorporation subscription may be revoked after the submission of the articles of board of directors pursuant to authority conferred upon it by the articles of incorporation or incorporation to the Securities and Exchange Commission. Outstanding shares exchanged for stocks in the event of reclassification or conversion. 62. the rule protects the corporation from Q: When is rescission available in a subscription contract? financially irresponsible subscribes When there is material or substantial breach of the contract. may subscription. Labor performed for or services actually rendered to the corporation. Q: What are valid considerations in subscription agreements? (Explain each) (CaPLa-PAO) 1. presumed to know that they can have recourse only to property of the corporation. Q: Example of material breach? Sec. Q: Is pre-incorporation subscription required? Yes. SH cannot be compelled to make good deficiency when corporation is any stock corporation unless at least 25% of the ACS has been subscribed and at not able to meet its obligation. still to be formed shall be irrevocable for a period of at least six (6) months from the date of The same considerations provided for in this section. Consideration for the issuance of stock may be any or a ONG YONG TIU combination of any two or more of the following: If there is no material or substantial breach in the subscription contract. such action cannot prosper 5. Rescission is not proper remedy for distribution of capital assets and property of 3. . insofar as they may be applicable. Q: When is the pre-incorporation subscription irrevocable? However.A subscription for shares of stock of a corporation Shares of stock shall not be issued in exchange for promissory notes or future service. valid distribution of assets and properties under the Corpo Code. any SH may demand rescission for his subscription and call Where the consideration is other than actual cash. rescission is not allowed 1. Subscribers unless: who have not paid in full are debtors of the corporation for the balance and if the o All of the other subscribers consent to the revocation corporation does not enforce the liability. maintained unimpaired for the protection of the corporate creditor. Pre-incorporation subscription. Sec. tangible or intangible. the corporation . are there any other circumstances in which the payment and may insist that it be collected subscription is revocable? Trust Fund Doctrine . subject to approval by the Securities and Exchange Commission. look up to satisfy their credits. Consideration for stocks. the valuation thereof shall initially be determined by the incorporators requirements under the Corpo Code or the board of directors. there will be a violation of the business judgment rule 2. If the 6-month period has already lapsed. Actual cash paid to the corporation.Stocks shall not be issued for a consideration less than the par or issued price thereof. Property. o Otherwise. or unless the be used for the issuance of bonds by the corporation. unless all of the other subscribers consent to the revocation. and since rescission will violate the Trust Fund Doctrine and the procedures for the 6.Q: Are SH liable to corporate creditors for unpaid subscriptions? Recall 25%-25% Rule under Sections 13 and 14. The RULE 2: It becomes irrevocable after the submission of AOI to the SEC creditors may sue the SH directly for the latter’s unpaid subscription Reason for irrevocability – it prevents a subscriber from speculating on the stocks of a proposed corporation. o The incorporation fails to materialize An unpaid subscription is an asset which the corporate creditors may look for Q: Other than these 2 exceptions. Reason: persons dealing with the corporation are least 25% of the total subscription has been fully paid. or consists of intangible property such as for distribution of corporate assets to him without complying with the patents of copyrights.

of the SEC. Such consideration is permitted under Sec. copyrights. a holder of preferred shares with conversion privilege may give approval is required. provided that the transaction account in the name of the future corporation where a must be done in GF + no fraud is perpetrated upon SHs and creditors deposit shall be made in compliance with the 25%-25% rule o Compensation payable/services actually rendered to corporation is (25% of the ACS must be subscribed. stock dividends are fully paid. Property. such issue is called stock purposes of the corporation dividends. (However. subject to APPROVAL by the Securities and Exchange o A corporation may reclassify its shares by amending its AOI and Commission. Nudibranch 31 . That is why SEC o Thus. Necessary and convenient for the use and for lawful corporation but not distributed among the SH. The consideration shall be the net assets of thereof shall initially be determined by the incorporators or the board those enterprises/units. mining claim o Q: What does ‘conversion’ mean? o Where the consideration is other than actual cash. they may be treated as property o Set off = payment to creditor with shares of stock of debtor corporation payment subject to SEC verification as to existence and credibility and in the form of property [See62(2)] in lieu of cash [62(1)] at the option of to the condition that the same shall be held in escrow until actual the corporation payment or collection of the receivables) o Should the corporation enters into such set off. his convertible preferred shares as a consideration for the issuance of a o US dollars should be duly converted to peso. tangible or intangible. of directors. exchange outstanding shares of SHs for stocks reclassified or converted o True Value Rule – if the consideration is other than actual cash (2-4). Previously incurred indebtedness of the corporation. otherwise they will be certain number of common shares considered payment by way of property A corporation cannot issue its stock as a gratuity o Financial instruments may be considered as personal property and may be legally accepted as capital contribution Q: What are the conditions that must complied with respect to the valid consideration? 3. 62(5). 25% of the subscribed CREDIT which has ascertainable value. value must be worth the value of the stocks issued. o The indebtedness must be the kind that is ACKNOWLEDGED by the o Thus. o Q: What is evidence that cash has been paid? o Corporation is allowed to receive as payment for its stocks labor or In practice. its from one class to another. the same can no longer be reapplied as payment 6. Patents. deed of assignment executed by subscriber/creditor applying his claim o Q: What are the requisites/conditions for property to be valid in consideration of the shares of stock. and (RNV3-T) o This means declaration of Stock Dividends. The valuation is INITIALLY determined by BOD or transferred from URE to stated capital. Property is based on a fair valuation equal to the par or declared and issued. requested from the bank that a deposit has been made to o Sec. Amounts transferred from unrestricted retained earnings to stated capital. The bank shall await the approval o Future services is not acceptable as payment. Since the retained earnings have incorporators already been applied as payment to issuance of shares covering stock 5. 62(4) expressly allows set off or satisfaction of previously incurred said temporary account indebtedness of a corporation by issuance of its shares of stock where o With respect to items 1 and 2. applied to payment of debts 6. receivables cannot be treated as cash since payment is to take board of directors place in the future. Payment of cash is evidence by a certificate 4. the SEC requires that 2. 1. the bank will allow the opening of a temporary services actually performed/rendered. Outstanding shares exchanged for stocks in the event of reclassification or o Q: Example of intangible property? conversion. Capable of being transferred to the corporation and to subsequent subscription rights. Once 3. capital must be fully paid. consideration for a subscription agreement? 5. issued value of the stock issued o Stock dividends involve issuance of stock directly paid from amounts 4. the VALUATION corporation. payment for shares of stock must be conflicting rights of creditor are not involved actually received by the corporation. or consists of Conversion from a sole proprietorship or a partnership to a intangible property such as patents or copyrights. The valuation is subject to SEC approval dividend declaration. Property is actually received o If stocks are issued in consideration of profits earned by the 2. Labor performed for or services ACTUALLY rendered to the corporation. actually received by the corporation and the corporation submit a report on the matter indicating the total necessary or convenient for its use and lawful purposes at a fair valuation equal to number of shares and the total amount to be paid for each claim and a the par or issued value of the stock issued.

subject to APPORVAL endorsed by the owner or his attorney-in-fact or other person legally authorized to make the by the Securities and Exchange Commission. a certificate of stock does NOT comply with Section 1 of the Negotiable EXPN: treasury shares so long as the price is reasonable (Sec. The issued price of no-par value shares may be FIXED: (ABS) in the books of the corporation.6(3)] o The date of issuance Certificate is NOT STOCK but is merely evidence of the holder’s interest and Q: What are watered stocks? What is the consequence of issuing watered stocks? (See Sec. However. the latter controls Only stock corporations can issue shares of stock Q: What should be the amount of the consideration? A certificate of stock is not necessary to render one a SH GR: Under Section 65. countersigned by the SECRETARY OR ASSISTANT SECRETARY 6(3)] The Certificate must indicate: o However. by the stockholders representing at least a majority corporation stating or acknowledging that the person named therein is the owner of the outstanding capital stock at a meeting duly called for the purpose. Shares of stock so issued are property such as patents of copyrights. . the Stated Value of the issued no par value shares cannot be o The name of the holder changed anymore because they are deemed fully paid and non. Shares of stock shall not be issued in exchange for promissory notes or future is recorded in the books of the corporation showing the names of the parties to the service. (c) Must be payable on demand. but it has a value separate and distinct from the Issued value – the value fixed by the Board of Directors which can be higher than value of the shares represented the par vale As between a General Information Sheet and corporate books. a new issue of capital stock above par value may be issued. the date of the transfer. or at a fixed or determinable future Sec. however. until the transfer 2. Where the consideration is other than actual cash. or consists of intangible corporation shall be issued in accordance with the by-laws. kinds. Q: What is the difference between par value and issued value? Certificate is not essential to the existence of a share of stock Par value – the value of a share as fixed in the AOI and reflected in the certificate It is prima facie evid that the holder is a SH in the corporation of stock The certificate itself is property. status in the corporation. transaction. may be applicable. o The number. transfer. insofar as they number of shares transferred. It is implied under Sec. An instrument to be ABOVE the par or issued value. It expresses the 65) contract between the corporation and SH. of a designated number of shares of its stock o Thus. and assessable upon issuance [Sec. and sealed with the seal of the Nudibranch 32 . 1. and class of shares represented. In the articles of incorporation or b. It is based on the # of shared owned by SH. shares of stock shall NOT be issued for a consideration LESS than the par or issued price thereof Q: Is a certificate of stock a negotiable instrument? o Watered stocks – stocks issued for a consideration less than their par No. Certificate of stock and transfer of shares. By the board of directors pursuant to authority conferred upon it by the Q: What is a certificate of stock? articles of incorporation or the by-laws. the number of the certificate or certificates and the o The same considerations provided for in this section. shall be valid. (d) Must be payable to order or to bearer. Form of negotiable instruments. In the absence thereof. may be used for the issuance of bonds by the corporation. provided (b) Must contain an unconditional promise or order to pay a sum that old SHs are given the right to purchase their proportionate part of the issue certain in money. or Certificate of stock – a WRITTEN INSTRUMENT signed by the proper officer of a c. This does not necessarily reflect the true or actual negotiable must conform to the following: value of stock since book or market vale normally fluctuates (a) It must be in writing and signed by the maker or drawer. 62 that a corporation may issue shares of stock at a price o Section 1. shall be divided into shares for which certificates signed by the president or vice president. and countersigned by the secretary or assistant secretary. except as between the parties. No shares of stock against which the corporation holds any unpaid claim shall be transferable 3. the Issued Value of no-par value shares may vary from time to Q: Who is the ‘proper officer” referred to? time o The certificate must be signed by the PRESIDENT OR VICE PRESIDENT.The capital stock of stock corporations time. the valuation thereof shall initially be personal property and MAY be transferred by delivery of the certificate or certificates DETERMINED by the incorporators or the board of directors. No transfer. It is not equivalent to ownership. Reason: A certificate of stock can only be issued to the registered owner or issued price Also. a. 9) Instruments Law. o But they may not be issued for a consideration less than 5 pesos [Sec. 63.

If a street certificate is delivered by the owner to a have been lost. Sealed with the seal of the corporation the SH. The date of the transfer. or where it is not in the possession 2. (e) Where the instrument is addressed to a drawee. and the assignor cannot yet 1. The original certificate must be surrendered where the person requesting the Q: What are the requirements for a valid stock transfer? issuance of a certificate is a transferee from the SH RURAL BANK OF LIPA V. The par value. The number of the certificate or certificates and While an assignment or sale may be valid between the 4. To be valid against third persons. he must be named (See modes and requirements below) or otherwise indicated therein with reasonable certainty. the transfer is recorded in the stock and mode: Indorsement + Delivery (in order to bind the parties) + Registration in the transfer books of the corporation corporate books (in order to bind the corporation). for the assignee Q: What are the remedies where the corporation refuses to issue a certificate? cannot enjoy the status of a SH. However. the transfer must be 2. or the full subscription as to no par value indorsement at the very least. The names of the parties to the transaction. it does not necessarily make the transfer effective. title of the stock until the settlement and division of the estate is made 4. It is not a negotiable instrument. o 3. CA – in case of shares represented by a certificate. May sue for damages where specific performance cannot be granted recorded in the corporate books 4. Reason: delivery. Alsons ownership and transfer of the shares in question is resolved o Mandamus will not lie where the certificate was not indorsed by the with finality owner If there is no certificate that has been issued yet. it is sometimes regarded as quasi. as to par value shares. duly REGISTERED in the books of the corporation 3. A petition for mandamus be deprived of his rights as SH until and unless the issue of o See: Ponce v. While an title or interest against the pledgee bank assignment may be valid and binding between the parties despite non- compliance with the requisite endorsement and delivery. Issued in accordance with the by-laws. the 8. it does not Q: What are the REQ for the issuance of Certificate of stock? necessarily make the transfer effective for the assignee cannot enjoy (SSID-RFSO) the status of a SH until and unless the issue of ownership is resolved 1. Rescission of contract of subscription and recover the consideration paid Q: Who causes the registration? Q: Can you transfer shares? Yes Nudibranch 33 . Street Certificate of Stock is one which is certificate unless the original certificate is surrendered unless the indorsed in blank by the owner thereof and thus is transferrable by original certificate is surrendered for cancellation or is clearly shown to mere delivery. To be valid to the corporation and 3 persons. CA) provides that there is really only 1 5. there is more than 1 mode of transferring stock. Q: What are the modes of stock transfer? negotiable in the sense that it may be transferred by indorsement coupled by According to De Leon. stolen. Judicial or extra-judicial settlement of estate – upon the death of 2. Delivery of the certificate with endorsement However. and o 3. or destroyed broker who pledged it to a bank which had no knowledge that the o 2. Without delivery and 6. Indorsement and delivery of stock certificate and to issue a new o EXPN: When estoppel arises. There must be DELIVERY of the certificate Q: What must be recorded in the books of the corporation? o 2. The number of shares transferred. parties. it is well-settled that it is non-negotiable because the holder takes it Section 63 states: “Shares of stock so issued are personal property and MAY be without prejudice to the right or defenses as the registered owner’s or transferor’s transferred”. Transfer made in a separate instrument – this mean the transfer of certificate did not belong to the broker. The share must be INDORSED by the owner or his attorney-in-fact or (NaDaNuNu) any authorized person rd 1. he is estopped from claiming stock by the execution of a Deed of Sale or Assignment. jurisprudence (Rural Bank v. Such other requirements as may be pursuant to AOI or valid by-laws transfer must strictly comply with the ff conditions: o 1. A suit for specific performance of an express or implied contract of the SH – shares may be transferred by means of a deed of assignment duly 3. countersigned by with finality the secretary or assistant secretary. the transfer shall be fatally defective shares. even without endorsement and delivery. Certificate must be signed by the president or vice president. his administrator or executor becomes vested with the legal 3. must first be fully paid 7. creditor may have under the law o 1.

NAVA V. In credit transactions. 64. Nudibranch 34 . The right of the corporation to demand payment is no less 3. in the absence of a certificate of stock. and rd valid indorsement and delivery. CA other transaction A mere pledgee of shares of stock does not have ownership over the shares. . Lim Tay) should have foreclosed transferable in the books of the corporation. There is no automatic appropriation allowed. Only the creditor had actual notice of the transfer or not. except the parties to the transfer registration. to be valid as against 3 parties because there is no valid registration. The registration of transfers of shares of stock in the stock and transfer books is a Considering that the law does not prescribe a period within which the registration function which usually pertains to that of the corporate secretary or the transfer of the transfer of shares should be effected. or any authorized person. Q: Is a corporation justified in refusing to register the transfer even though Validity of stock transfer – A bona fide transfer of shares of a corporation not delivery and indorsement has been made? registered or noted in the books. Reason for requiring registration of stock transfer – intended principally for the Q: What must the assignee do to protect his interest? benefit and protection of the corporation to whom it must accord the right o He must secure a SPA executed by the registered owner of the share granted to them by law and against whom it can enforce liability that may arise authorizing the transferor to demand transfer in the stock and transfer from ownership of stock book Right of corporation to refuse registration of transfer – the registration of o The transferee must present the indorsed certificate to the corporate transfers of shares of stock in the stock and transfer books is a function which secretary who shall effect the transfer in the corporate books. It is void as against corporate creditors.No certificate of stock shall be issued to a subscriber appears that he has failed or refused to do so upon demand of the proper person until the full amount of his subscription together with interest and expenses (in case of delinquent shares). The buyer/assignee of shares cannot just go to the corporation and attachment or execution of said shares regardless of whether the attaching have the transfer registered in the corporate books. 73. the shares or caused the transfer in his own name. as to all persons registered owner. It is void as to the attaching or executing creditors of the transferor. as he would be to pay any purposes of registration other debt. ALSONS CEMENT to as “pactum commissorium” and is void. the transfer is not consummated not elsewhere. CA) not accrue until there has been a demand and a refusal concerning the transfer The registered owner will REQUEST from the Secretary or transfer agent to change the name under the certificate to the transferee’s name. is invalid as against a subsequent lawful o Yes. mandamus should not issue to compel the secretary of the corporation to make a transfer of the stock on the books of the corporation UNLESS it affirmatively Sec. as well as Restrictions on transfer of stock – the power to impose restrictions on transfer of subsequent purchasers in good faith without notice of the transfer shares cannot be exercised unless conferred upon the corporation by law or it AOI 5. Where no certificate has been issued or for some reason. his attorney. the creditor (in this case. It is void as to the corporation except when notice is given to the corporation for subscriber is as much bound to pay his subscription. PEERS As to the issue on assignment. the action to enforce the right does agent of the corporation (Lim Tay v. issue a usually pertains to that of the corporate secretary or the transfer agent of the new stock certificate in favor of the transferee and cancel the former corporation certificate Mandamus as a remedy where corporation refuses to issue certificate – Assignment: Up to Sec. The 2. it is not in the Indorsement and delivery – The certificate must be properly indorsed and title is possession of the SH. it may be transferred by means of a deed of assignment but vested to certificate by delivery of the duly indorsed certificate even without the same must be duly recorder in the books of the corporation executing a deed of assignment or sale of shares which is necessary only when no certificate of stock has as yet been issued or where the same is not in the Q: What is an unpaid claim? possession for whatever reason of the transferor. and the transferor is still liable to the incontestable. there can be Q: What are the effects of unregistered transfer of shares? no transfer of shares of stock 1. It is valid and binding as between the transferor and the transferee A stock subscription is a subsisting liability from the time it is made. 63 strictly requires the recording of the transfer in the corporate books. If the No shares of stock against which the corporation holds any unpaid claim shall be obligation is not paid. has been paid. automatic appropriation is referred PONCE v. may cause interested. Issuance of stock certificates. Absent any instruction and despite the fact that there is Sec. 4. and this is true even in then absence of an express promise to pay corporation the amount subscribed. Unpaid claim – those claims arising from unpaid subscription and not to any indebtedness which a subscription may owe the corporation arising from any LIM TAY V. if any is due. And indeed.

share.Subject to the provisions of the contract of case. . The prohibition in Sec. No certificate of stock shall be issued to a subscriber until the FULL AMOUNT Q: For how much? of his subscription together with interest and b (in case of delinquent shares). if any. If within thirty (30) days from the said date no payment is made. Liability of directors for watered stocks. does not forthwith express his objection in writing and file the same with Generally. the 64 is to prevent partial disposition of subscription when it is not yet fully paid director/officer must immediately file his written objection to the However. You paid P200 as down payment and have a balance of P300. in either case with accrued interest. Upon having knowledge of the issuance of the watered stock. has been PAID issuance of the stock and the PAR OR ISSUED VALUE of the same. Reason: Subscription is an indivisible contract. Failure to pay on such date shall render the entire Purpose of prohibition against issuance of Watered stock: to protect persons who balance due and payable and shall make the stockholder liable for interest at the legal rate on may acquire stock and the creditors of the corporation particularly those who may such balance. the view is rate of interest fixed in the by-laws. computed from become such on the faith of its outstanding capital stock being fully paid such date until full payment. shall be solidarily. No stock certificate shall be issued until full payment of Q: Is there any way to escape liability? subscription. unless a different rate of interest is provided in the by-laws. no. o 3. valued in excess of its fair value. . as it may deem than its par or issued value (discount share). Issued as fully paid when the corporation has received a lesser sum or such percentage thereof. if any. Q: When does a stock become delinquent? o 2. Issued as stock dividend when there are no sufficient retained accrued. o Yes. Issued for a consideration other than actual cash. Q: When should you reckon the payment interest? From the date of subscription until the payment of such interest is made Q: What is a watered stock? What are the instances wherein a watered stock is issued? Watered stock – It is a stock issued not in exchange for its equivalent either in Sec. or who. stock dividends. De Leon has the following ‘contrary view’: when it is not restricted by issuance with the corporate secretary the by-laws. Having knowledge thereof. the fair valuation of which is less than its par or issued value Payment of any unpaid subscription or any percentage thereof. such rate obsolete and Sec. 66. Issued without corporation (bonus share) payable to the corporation unpaid subscriptions to the capital stock and may collect the same o 2. shall be made on the date specified in the contract of subscription or on the earning or surplus to justify it date stated in the call made by the board. Q: When is a subscriber liable to pay interest for unpaid subscription? Sec. 64 prevails.Any director or officer of a corporation If so required by the by-laws and/or subscription contract consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash. o = shall be SOLIDARILY LIABLE with the stockholder concerned to the Q: Can the corporation issue stock certificates without full payment of the subscription? corporation and its creditors No. 65. This was in essence embodied in a SEC shall be deemed to be the legal rate opinion. if so required by. or services. or necessary. Q: When is the 30-day period reckoned? Nudibranch 35 . does not forthwith express his objection When the subscriber fails to pay the unpaid subscription or balance within 30 days in writing and file the same with the corporate secretary. a corporation has the option to issue stock certificates with respect to the shares that may be covered by the amount paid (pro-rata) Sec. unless the board of directors orders otherwise Any director or officer of a corporation: o 1. and at the 1965 (prior to the enactment of the present corpo code). It includes stock subscription. Consenting to the issuance of watered stocks or. property. 67. If no rate of interest is fixed in the by-laws. you subscribe to 5 shares at a par value of P100 for each share. together with the interest o 4. if any o For the difference between the FAIR VALUE received at the time of is due. the board of directors of any stock corporation may at any time declare due and o 1. Can o Issued value – the value fixed by the Board of Directors which can be the corporation issue stock certificate? higher than the par vale Generally. Payment of balance of subscription. liable with the stockholder concerned to the In the absence thereof. such as property or services. the legal rate of 12% per annum corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. having Q: What is the rate of interest? knowledge thereof. Interest on unpaid subscriptions. . o Par value – the value of a share as fixed in the AOI and reflected in the Q: For instance. the full certificate of stock amount of which is P500. the rate fixed in the by-laws the corporate secretary.Subscribers for stock shall pay to the corporation o Note: Sir says that since this view is based on an SC case promulgated in interest on all unpaid subscriptions from the date of subscription. all stocks covered by said subscription shall thereupon become delinquent and shall be Q: What is the liability may be liable for issuance of watered stock? subject to sale as hereinafter provided.

or unless the board of directors otherwise Call – a declaration officially made by a corporation requiring payment of all or a orders. Made by the BOD (thru a resolution) disposed of by said corporation in accordance with the provisions of this Code. and the date.The board of directors may. but not more than 60 days from date stock becomes delinquent 4. and place of sale which is not less than 30 days (30) days nor more than sixty (60) days from the date the stocks become delinquent. non-payment will if any. bid for the same. From the date fixed in the subscription contract to make payment. Extrajudicial (Sec. NOTICE AND PUBLICATION of sale Nudibranch 36 . Made in the manner prescribed by law 3. o 1. it must be applied to all subscribers with unpaid Q: What is the procedure for the sale of delinquent stock? subscriptions 1. time and place of the sale which shall not be less than thirty Date. RESOLUTION ordering sale of delinquent sale o Q: What are the contents of the resolution? Sec. The stock so purchased shall be transferred to such purchaser in the books of the Q: What must the resolution contain? corporation and a certificate for such stock shall be issued in his favor. with a copy of the resolution. then the call does not operate uniformly determining when stock becomes delinquent 2. the next step is: 4. RESOLUTION declaring unpaid subscriptions payable Q: Assuming that the call complies with the first. when a call is made. the corporation days from the date fixed in the subscription contract may. and the total amount due shall be credited as paid in full in the books of the corporation. for the smallest number of shares or fraction of a o Resolution of the BOD share. 43) 3. shall be sent to every delinquent stockholder OR either personally or by registered mail. a stock may become delinquent due to continuous non-payment for 30 expenses of sale. otherwise the stock shall be 1. Judicial (Sec. 70) o The corporation must wait for 30 days to lapse 3. From the date fixed or stated in the call. order the sale of FULL AMOUNT = Amount due + interest + costs of delinquent stock and shall specifically state the amount due on each subscription plus all advertisements + expenses of sale accrued interest. subject to the provisions of this Code. Q: Is call always necessary in order to make a stock delinquent? Should there be no bidder at the public auction who offers to pay the full amount of the No. plus accrued interest. When some subscribers are called to pay a HIGHER RATE or price necessary: to know when to reckon the 30-day period in than other. Delinquency sale. is there any other form of o Q: What are the contents of the resolution? discrimination? The date which payment is to be made. . 2. Q: What is a call? costs of advertisement and expenses of sale. is there any other way that the o This means that the BOD shall make a call for payment rd 3 requisite is violated? In other words. the balance due on his subscription. said delinquent stock shall be sold at public auction to such bidder who shall offer to certain prescribed portion of a shareholder’s stock subscription pay the full amount of the balance on the subscription together with accrued interest. Withholding of Stock Dividends (recall Sec. but the date of payment is fixed in the subscription balance on the subscription together with accrued interest. for the smallest number of shares or fraction of a share. Title to all the shares of stock Q: What are the REQ for a valid call? covered by the subscription shall be vested in the corporation as treasury shares and may be 1. Reason why this is o Yes. The same shall furthermore be published once a week o 2. Q: What is the effect if stock is declared delinquent? o It may be subject to sale by the corporation Unless the delinquent stockholder pays to the corporation. by resolution. NOTICE to SHs of resolution Q: What are the remedies to enforce payment of stock subscription? o Must give notice to SH to make payment. time. if there is no date fixed in for two (2) consecutive weeks in a newspaper of general circulation in the province or city the subscription contract where the principal office of the corporation is located. 67-69) delinquent 2. costs of advertisement and contract. Even if there is no call. shall be credited in favor of the delinquent stockholder who shall likewise be entitled to make stock delinquent) the issuance of a certificate of stock covering such shares. Must operate uniformly to all SH Q: What is delinquency sale? Sale of delinquent stocks in a public auction to the highest bidder Q: What is the meaning of ‘operate uniformly’? Example? Firstly. Collection of Cash Dividends – deduct the cash dividends before issuing them o After the days and the SH fails to make payment. 68. o The date in which payment is to be made (otherwise. costs Q: What must be the form of the call? of advertisement and expenses of sale. The remaining shares. on or before the date specified for the sale of the delinquent stock. Notice of said sale.

o X is not the highest bidder because he does not even meet the minimum bid of 250 Q: What are the requisites before filing an action questioning the delinquency sale? o Y is no the highest bidder because he is offering to buy 2 shares at 250. The interest and cost and expenses cost 50 pesos complied with (I. unless the party seeking to maintain such action first pays or tenders to on the subscription (together with accrued interest. the date of sale in the notice was unpaid stock of B delinquent and caused its sale after notice and publication. When sale may be questioned. Pay or tender the sum + interest meet the minimum bid o Sum – the amount for which the stock was sold Q: Where shall each share go? 2. Thus. Y bid 25 for 2 delinquency). 70. In the notice of the sale corporation made a call for payment but B failed to pay. his offer does not even 1. REQ: which is equivalent only to 125 per share. + Ex: Failure to conduct a public bidding or auction (i. with accrued interest. the corporation is offering 5 shares with a par value of 100 peso each or a total amount of 500 for subscription for each SH. No. Prior call Q: What doctrine will be violated if no URE? o Q: Why do you need a call? o The Trust Fund Doctrine which provides that the subscribed capital o Reason: In oblicon. the interest and costs and expenses. unpaid subscription. the leaving 200 remaining unpaid. . o The SH shall be notified personally or thru registered mail o Publication once a week for two (2) consecutive weeks in a newspaper Q: Assuming that there is already a highest bidder. the BOD have the discretion whether or not to accept their o Sale of so many shares so as to effect payment of the full amount to the offer. Thus. being the highest bidder of the sale shall own 1 share Sec. or in the sale itself of Highest bidder – such bidder who shall offer to pay the full amount of the balance the delinquent stock. The IRREGULARITY or DEFECT: corporation made a call and gave notice to the SH but still B was not able to pay. costs and expenses. Q: What if there are no bidders. is the corpo bound to accept the offer of of general circulation in the province or city where the principal office the highest bidder? of the corporation is located NO. The full amount = amount due. and no such action shall be maintained unless it is commenced by the filing of a complaint within six (6) months from the date of sale. yielding a full corporation sold it to whomever it wishes). incorrect amount of 250 determination of the correct full amount due Q: Who is the highest bidder? o Z is the highest bidder because he offers to pay the full amount of the Q: Is Irregularity in call a ground to question the sale? Why or why not? unpaid subscription for the smallest number of shares (250 for 1 share. Commence and file the action within 6 months from the date of sale o Of the total subscription of 5 shares: o Otherwise. In the sale itself of the delinquents stock o The minimum bid is 250.e. . which is 200. Q: For instance. B. only 1 week of publication) Q: What is the minimum bid? o 2. There where 3 incorrect (not less than 30 days. an obligation becomes due upon demand. highest bidder Sec. The corporation may only purchase the stock from the net earning or from the REQ: URE 1. with interest from the date expenses of sale) for the smallest number of shares or fraction of a share of sale at the legal rate. which is 50. B only paid the amount of 300. and Z bid 250 for 1 share. The call stock shall not be impaired because it is the common fund which shall serves as a demand because it is the resolution by the board calling out be for the payment of creditors Nudibranch 37 . the bidders are the ones who are making their offers to 5. SALE of delinquent stocks the corporation. Court action to recover unpaid subscription. A subscribed to 5 shares and paid the full Q: What are the grounds to question a delinquency sale? Example? subscription of 500. Thus. The corporation declared the Ex: No notice was made. costs of advertisement and the party holding the stock the sum for which the same was sold. no publication or the publication was not fully shares. not more than 60 days from dealers who wanted to buy the remaining shares: X bid 200 for 2 shares. the action will be barred/Prescribed B shall retain the 3 shares that he has already paid Z. 69. The o 1.e.No action to recover delinquent stock sold can be Q: Who is the highest bidder? sustained upon the ground of irregularity or defect in the notice of sale. can the corporation forfeit the delinquent stock? Q: What are the requisites for judicial action? NO.Nothing in this Code shall prevent the And the remaining 1 share shall be deemed fully paid and corporation from collecting by action in a court of proper jurisdiction the amount due on any shall be credited to the delinquent SH. In a public auction.

effective for a period of one (1) year. subscription Q: What could be evidence in addition to the affidavit of loss? What could be supporting documents? Nudibranch 38 . and that after the expiration of one (1) year from the interest. issuance by a corporation of new certificates of stock in lieu of those which have been lost. if no contest has been presented to said corporation regarding said certificate of stock. the of the rights of a stockholder except the right to dividends in accordance with the provisions name of the registered owner and the serial number of said certificate. the serial number of the certificate and the name of the 3. the commercial courts of the RTC have 2. 72. stolen or destroyed. 73. stolen or destroyed and 1. That if a contest has been presented to said of stock dividends) corporation or if an action is pending in court regarding the ownership of said certificate of 3. and the costs and expenses of advertisement. In the absence thereof. no action may be brought against any corporation which shall have issued certificate of stock Sec.No delinquent stock shall be voted for be entitled to vote or consecutive weeks at the expense of the registered owner of the certificate of stock which to representation at any stockholder's meeting. collection of cash dividends. delinquent shall have all the rights of a stockholder. The name of the corporation which issued the same the interest shall be charged at the legal rate of 12% He shall also submit such other information and evidence which he may deem o The liability to pay interest shall be reckoned from the date of necessary. the o With respect to verbal subscription = 6 YEARS reckoned from the LAST circumstances as to how the certificate was lost. stolen or destroyed pursuant to the procedure above-described. provided: o 2. once a week for three (3) Sec. the right to make such contest shall be barred and said corporation Q: What are the effects of stock delinquency? shall cancel in its books the certificate of stock which has been lost. GR: All other rights are lost security in lieu thereof as may be required. The serial number of the certificate and stated in the Subscription Contract or By-Laws. or negligence on the part of the corporation and its officers. in which case a new certificate may be issued even before the expiration of the one through these dividends (i. Rights of unpaid shares. The circumstances as to how the certificate was lost. the issuance of the new certificate of stock in otherwise ordered by the board lieu thereof shall be suspended until the final decision by the court regarding the ownership 4. do you lose all your rights as a SH? 1. . + Expenses of LITIGATION 4. stolen or destroyed. said corporation shall publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office. unless the registered owner files a bond or other 2. for such o EXPN: The right to receive dividends amount and in such form and with such sureties as may be satisfactory to the board of o Reason: One of the modes to collect payment of unpaid subscription is directors. He shall also submit such other information and evidence o Amount due = balance of unpaid subscription + Interest + Costs of SUIT which he may deem necessary. The subscriber is still entitled to all rights of a SH until the stock has been o 1.e. bad faith. if any. File an AFFIDVIT (of loss) in triplicate containing the following: No. stolen or destroyed. the subscriber is liable for interest on his unpaid subscription. Directors who are elected by virtue of delinquency stock may be subject to quo of said certificate of stock which has been lost. stolen or declared delinquent destroyed. nor shall the holder thereof be entitled to any has been lost. The number of shares represented by such certificate. to all SH to pay their unpaid subscriptions. The amount must be limited to the amount due on any unpaid subscription corporation which issued the same. .The following procedure shall be followed for the the obligation to pay due and demandable. Q: What must a SH do if his stock certificate is lost or destroyed? Q: If you are a subscriber with unpaid stock. o 4. stolen or destroyed. However. 2. The registered owner of a certificate of stock in a corporation or his legal representative subscription itself shall file with the corporation an affidavit in triplicate setting forth. Lost or destroyed certificates. date of the last publication. The SH cannot vote or be voted upon and to be represented in a SH meeting issue in lieu thereof new certificate of stock. until and unless he pays the amount due on his subscription with accrued shares represented by such certificate. if possible. o It is required under the By-Laws. and the number of of this Code. warranto proceedings o Reason: Except in case of fraud. A call is necessary to make Sec. The notice shall state the name of said corporation. Effect of delinquency. . After verifying the affidavit and other information and evidence with the books of the jurisdiction corporation. 71. The amount of interest shall be that o 3. Subject the stock to delinquency sale (depending upon BOD’s discretion) unless stock which has been lost. the number of shares DEMAND represented by such certificate. With respect to the jurisdiction.Holders of subscribed shares not fully paid which are not in lieu of those lost. withholding (1) year period provided herein: Provided. The action must be filed within the prescriptive period stolen or destroyed: o With respect to written subscription contract = 10 YEARS reckoned from the date the right of action accrues (meaning from the date of the 1.

Books to be kept. and in addition.Every corporation shall keep and carefully Q: Why is it necessary for the affidavit. . examination of the records or minutes of such corporation or of any other corporation. effective for a period of trustee. o The number of shares represented by such certificate. trustee. if special its object. and every act done or ordered done at the meeting. stock which has been lost. the time when any director. stockholder or member. the serial meetings of stockholders or members. o Blotter in the barangay. and o That after the expiration of one 1 year from the date of the last The records of all business transactions of the corporation and the minutes of any meetings publication. the yeas and nays must be taken on any motion or proposition. or negligence on the part of the corporation and director or stockholder of the corporation at reasonable hours on business days. stolen or destroyed which must be kept a record of all stocks in the names of the stockholders alphabetically arranged. the RIGHT TO CONTEST shall be corporation at reasonable hours on business days and he may demand. sale or transfer GR: No action may be brought against any corporation which shall have issued of stock made. and on a similar demand. or the issuance of the new certificate of stock in lieu thereof was not acting in good faith or for a legitimate purpose in making his demand. the installments paid and unpaid on all stock for which subscription has been made. Upon the demand of any weeks at the expense of the registered owner of the certificate of stock. and by and to whom made. The protest of any director. in lieu thereof as may be required. for such amount and in such form and with which shall be punishable under Section 144 of this Code: Provided. stolen or destroyed. 74-80 fixed by the Commission. whether the meeting was regular or special. shall be SUSPENDED until the final decision by the court regarding the ownership of said certificate of stock which Stock corporations must also keep a book to be known as the "stock and transfer book". in which Nudibranch 39 . how authorized. in has been lost. stockholder or member of the regarding said certificate of stock. further. the date thereof. stock transfer agent. in which shall number and other details correspond with that reflected in the books) be set forth in detail the time and place of holding the meeting. shall be liable to such director. a statement of every alienation. stockholder or member on any action or proposed o The serial number of said certificate. shall be guilty of an offense one (1) year. trustees. for a copy of barred and said corporation shall cancel in its books the certificate of excerpts from said records or minutes. which shall be renewable annually: Provided. corporation or in the office of its stock transfer agent and shall be open for inspection by any EXPN: in case of fraud. trustee. PUBLICATION of a notice in a newspaper of general circulation in the place given. or of the board of directors or trustees. VERIFICATION of the affidavit and other information and evidence Sec. 74. o The name of said corporation. Q: Can you sue a corporation for issuing new stock certificates? and the date of payment of any installment. those present and where the corporation has its principal office. stolen or destroyed and issue in lieu thereof new certificate of stock Any officer or agent of the corporation who shall refuse to allow any director. the liability directors under this section for such action shall be imposed upon the directors or trustees who voted o Q: What if there is a contest? for such refusal: and Provided. Certified True Copy of either. at his expense. to be verified? preserve at its principal office a record of all business transactions and minutes of all o In order to compare the same with the corporate books. police report. The director. That it shall be a defense to any action under this If a contest has been presented to said corporation or if an section that the person demanding to examine and copy excerpts from the corporation's action is pending in court regarding the ownership of said records and minutes has improperly used any information secured through any prior certificate of stock which has been lost. bad faith. if no contest has been presented to said corporation shall be open to inspection by any director. writing. in accordance with the provisions of this Code. (i. o Q: When may the 1 year period be dispensed with? stockholder or member of the corporation to examine and copy excerpts from its records or unless the registered owner files a BOND or other SECURITY minutes. That a stock corporation is not precluded from performing or making transfer of its own stocks. The stock and transfer book shall be kept in the principal office of the procedure above-described. stockholder or member for damages. etc. its officers No stock transfer agent or one engaged principally in the business of registering transfers of Q: What must the corporate secretary do? stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Exchange Commission and pays a fee as may be Assign: Sec. trustee. and action must be recorded in full on his demand. once a week for 3 consecutive absent. and such other entries as the by- certificate of stock in lieu of those lost.e. stolen or destroyed pursuant to the laws may prescribe. the notice 3. That if such refusal is such sureties as may be satisfactory to the board of made pursuant to a resolution or order of the board of directors or trustees. The TITLE VIII purpose of additional evidence is to prove to the corporate secretary CORPORATE BOOKS AND RECORDS that the certificate was indeed lost 2. and a record thereof carefully o The name of the registered owner and made. stockholder or notice shall contain the ff: member entered or left the meeting must be noted in the minutes. trustee.

and a profit or loss statement for said taxable year. It does not only include the time it Q: What is included in the right to financial statements? started and adjourned. What are the remedies in case a SH’s the assets and liabilities of the corporation) right is violated? 1. mortgage) Receipts or bank deposits (to prove payment. corporation for the preceding year. The significance of this is that he acquired only 1 Q: What do you mean by Stock and Transfer Books? share not for the purpose of investing in the corporation’s business. financial statement. assuming that the corporation However. income tax returns. 75. acted on ulterior motives and in bad faith. information relevant to his case with PNB (since he sued PNB for several Before incorporation.00 .the o Ex: to obtain trade secrets for the SH’s own benefit or to be divulged to financial statements may be certified under oath by the TREASURER competitors only (or any responsible officer of the corporation – Sir did not mention 3. Minutes of the SH/members meetings GONZALES V. showing in reasonable detail its assets and contracts. but to get Records all stock ownership. Right to financial statements. liabilities and the result of its operations. The exercise of the right was not for a legitimate purpose this) o This applies when the SH did not act in BF but his purpose was not Q: Who shall SIGN the financial statement? legitimate o Aside from the independent CPA. vouchers. Balance Sheet as of the end of the last taxable year 2.000. the financial All other records in relation to the transaction must be kept at the principal office statements may be certified under oath by the treasurer or any responsible officer of the corporation. ledger. PNB 3. etc. duly signed and A Rea Estate Mortgage or Chattel mortgage (to prove that the loan is secured by a certified by an independent certified public accountant. 4. which shall include a balance sheet as of the end of the last taxable year as: journal. the corporation must buy a blue book with the SEC which is transactions) kept therein worth around 500 pesos Sec. What should be kept in relation to the At the regular meeting of stockholders or members. if the paid-up capital of the corporation is less than P50. which shall include financial statements.By 1.000. Q: A corporation applied a loan with BPI. except the payment of a o A legitimate purpose could be to determine whether the fund used to license fee herein provided. . The SH acted in bad faith o If the paid-up capital of the corporation is LESS than P50. There shall be an annual SH/members meeting and each SH shall receive a 3.000. He only owned 1 share of stock. sale or transfer of stocks. shall be applicable. Q: What do you mean by minutes? All matters taken up during the meeting. distribute dividends really come from URE. subject to limitations (the right is not absolute). Gonzales. stating in detail Q: Every SH is entitled to inspect corporate books. Petition for Mandamus Q: Is it necessary to always have a request? 2. A record of all business transactions 2. the corporation shall furnish to him its most recent Includes all papers pertaining to the operation of the corporation to its SHs. 1. Stock and transfer books (with respect to stock corporations only) The SC ruled that the SH.Within ten (10) days from receipt of a written Q: What do you mean by record of business transactions? request of any stockholder or member. Civil Action No. Criminal Action based on Section 144 which is the penal provision of the copy of the financial statement Corporation Code Q: Who shall CERTIFY the financial statement? o It depends Q: What could be the grounds to deny the right to inspect corporate books? o If the paid-up capital of the corporation is MORE than P50. otherwise the trust fund doctrine will be violated Q: What are the documents that must be kept in the principal office of a corporation? o Ex of not legitimate purpose? 1. the board of directors or trustees shall transaction? present to such stockholders or members a financial report of the operations of the Promissory note (to prove contract of loan).case all the rules and regulations imposed on stock transfer agents.00. such financial statement. Misuse of information previously obtained by the SH an Independent CPA 2.00 . receipts. the other signatories are: the President OR Vice-president Nudibranch 40 . as well as any alienation. Income Statement (profit or loss statement for the taxable year. Minutes of the Board/trustees meetings A SH can inspect corporate books.

Effectivity of merger or consolidation. shall be the consolidated corporation designated in the plan of consolidation. . corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be the surviving corporation designated in the plan of merger. single corporation which shall be the consolidated corporation. 78. Stockholder's or member's approval. action or proceeding brought by or against any of such constituent forth: corporations may be prosecuted by or against the surviving or consolidated corporation. Any dissenting stockholder in stock consolidation. it shall issue a certificate of merger or of consolidation. immunities and franchises of each of the constituent corporations. . building and loan associations. Sec. upon investigation. at least two (2) weeks prior to the date of the meeting.Two or more corporations may merge into a single 3. That if 2. the number of shares outstanding. The terms of the merger or consolidation and the mode of carrying the same into effect. 77. articles of merger or articles of consolidation liabilities and obligations of each of the constituent corporations in the same manner as if shall be executed by each of the constituent corporations. Plan or merger of consolidation. the appraisal right shall be extinguished. 3. If. The plan of the merger or the plan of consolidation. The Nudibranch 41 . shall be considered as the agreement of merger or consolidation. corporation which shall be one of the constituent corporations or may consolidate into a new respectively. including the members of each of the constituent corporations. if any. in the articles of incorporation of the surviving government agency shall first be obtained. MERGER AND CONSOLIDATION 2. TITLE IX 1. and all receivables due on whatever account. If the Commission is satisfied that the merger or corporation in case of merger. and Sec.The merger or consolidation shall have the mail. the same shall be submitted for approval by the stockholders or members of to each constituent corporation at least two (2) weeks before said hearing. The separate existence of the constituent corporations shall cease. of such meetings shall be given to all stockholders or members of the respective corporations. real or personal. That in the case of merger 1. A statement of the changes. it shall set a hearing to give the corporations concerned the board of directors or trustees of the constituent corporations of the plan of merger or opportunity to be heard. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. The surviving or the consolidated corporation shall thereupon and thereafter possess all all the constituent corporations and ratified by the affirmative vote of stockholders the rights. Effects or merger or consolidation. the board of directors decides to surviving or the consolidated corporation. The surviving or the consolidated corporation shall possess all the rights. in case of shall be necessary for the approval of such plan. companies. hereinafter referred to or consolidation of banks or banking institutions. . insurance companies. 76. The board of directors or trustees of each corporation. trust as the constituent corporations. Such plan. privileges. 4. belonging to. corporations may exercise his appraisal right in accordance with the Code: Provided. shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval: Provided. and all and every other interest of. and. amendment is approved by majority vote of the respective boards of directors or trustees of 4. immunities and powers and shall be subject to all the duties and liabilities of a corporation Any amendment to the plan of merger or consolidation may be made. or in the case of non-stock corporations. or amendment. Written notice of the date. all the statements required to be set forth in the articles of incorporation for Code and existing laws. and representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of all property. . or due to each constituent corporation. the number of shares or members voting for and against such plan. provided such organized under this Code. party to the merger or consolidation. with respect to the consolidated corporation in case of consolidation of the corporations concerned is not inconsistent with the provisions of this consolidation. shall approve a plan of merger or consolidation setting forth the following: signed and certified as herein above required. the Securities and Exchange Commission has reason to believe that the proposed merger or consolidation is contrary to or inconsistent with the provisions of this Sec. time and place of hearing shall be given consolidation. 80. vice-president and certified by the secretary or assistant secretary of each corporation setting and any pending claim. . and. The names of the corporations proposing to merge or consolidate. 79. together with any subscriptions to shares and other choses in action. As to stock corporations. Notice shall thereafter proceed as provided in this Code.After the approval by the stockholders or 5. shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed. except that of the after the approval by the stockholders of such plan. abandon the plan. As to each corporation. the number of members. The Commission each of such corporations at separate corporate meetings duly called for the purpose. The constituent corporations shall become a single corporation which. educational institutions and other special 2. Articles of merger or consolidation. The surviving or consolidated corporation shall be responsible and liable for all the members as required by the preceding section. and the merger or consolidation shall be effective. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock 1. at which time corporations organized under this Code. the favorable recommendation of the appropriate 3. corporations governed by special laws. and Sec. Said notice shall state the purpose of the meeting and shall include a copy or a summary following effects: of the plan of merger or consolidation. either personally or by registered Sec. privileges.The articles of merger or of consolidation.Upon approval by majority vote of each of the Code or existing laws. in case of merger. to be signed by the president or such surviving or consolidated corporation had itself incurred such liabilities or obligations. public utilities.

The articles of ST 1 STEP: Board approval . in the AOI of the surviving ASSOCIATED BANK V. upon constituent corps investigation. the SEC will hold a The consolidated corp shall assume the liabilities and responsibilities of the hearing to give the parties a chance to be heard (due process) . it shall issue a certificate of merger or of consolidation.rights of creditors or liens upon the property of any of such constituent corporations shall not corporation in case of consolidation. and privileges of the AC are transferred to the SC merger or consolidation. all the statements required to be be impaired by such merger or consolidation. there is an absorption of 1 corporation of the other by the SHs or members of each corporation at separate corporate meetings duly Surviving Corporation – The corp which absorbs the other corp called for the purpose.The BOD/BOT of each corporation to the merger or merger or of consolidation. and privileges of the constituent corps shall be transferred to o (Sir: in short. If the Commission is satisfied that the merger or consolidation of the o 1. Notice of such meetings shall be given to all SHs or Absorbed Corporation – The corp which is dissolved members of the respective corporations. o 1. respectively.That in the case of (not answered) merger or consolidation of banks or banking institutions. the number of members. The assets. the matter set forth in 78) th the consolidated corp 4 STEP: If the proposal is inconsistent with the Corpo Code. and o 3.If. trust companies. existing laws. As to stock corporations. and. LB is the SC. As to each corporation. In other words. at which o 2. which would you prefer? Why? appropriate government agency must first be obtained . public utilities. Said notice shall state the Q: What are the effects of merger? purpose of the meeting and shall include a copy or a summary of the plan of The assets. either personally or by registered mail. corporations concerned is not inconsistent with the provisions of this Code and hereinafter referred to as the constituent corporations. The dissolved corporations are called Constituent Corporations o 2. shall be consolidation. building and loan Merger – one of the corporations has already an established name associations. with respect to the consolidated Nudibranch 42 . a recommendation by the Q: If you are a director of a corporation. The names of the corporations proposing to merge or consolidate. o 3.articles of merger or The SHs of the AC will become the SH of the SC articles of consolidation shall be executed by each of the constituent corporations. th 5 STEP: If a corporation is created by special law. signed and certified as herein above required. educational Consolidation – can start a new slate institutions and other special corporations governed by special laws. A statement of the changes. 6 STEP: Issuance of Certificate of Merger/Consolidation by SEC. the number of shares or members voting for Q: What are the effects of consolidation? and against such plan. the same into effect. and o 4. where 1 corporation is dissolved and the other is 2 STEP: SH’s approval – the plan of merger shall then be submitted for approval retained. rights. the favorable recommendation of the appropriate government agency shall first be obtained th Q: Explain the procedure in case of merger/consolidation. insurance companies. DBP is the AC 3 STEP: Draft the Articles of Merger or Consolidation . to be signed by the president or vice-president and certified by the secretary or Q: What is consolidation? assistant secretary of each corporation setting forth: 2 or more corporations unite to give rise to a new corporation. Such other provisions with respect to the proposed merger or Q: What is merger? consolidation as are deemed necessary or desirable nd 2 or more corporations unite. The affirmative vote of stockholders representing at The liabilities and responsibilities of the AC shall be assumed by the SC least 2/3 of the outstanding capital stock of each corporation in the case of stock The AC will be dissolved corporations or at least (2/3) of the members in the case of non-stock The SC will be retained corporations shall be necessary for the approval of such plan. The terms of the merger or consolidation and the mode of carrying time the merger or consolidation shall be effective. it shall set a hearing to give the The SH of the constituent corps shall become the SH of the consolidated corp corporations concerned the opportunity to be heard. CA corporation in case of merger. shall approve a plan of merger or consolidation setting forth the submitted to the Securities and Exchange Commission in quadruplicate for its following: approval. or in the The new corporation is called Consolidated Corporation case of non-stock corporations. rd o Ex: Landbank and DBP merged. rights. if any. The plan of the merger or the plan of consolidation. the Securities and Exchange Commission has reason to believe that The constituent corps will be dissolved the proposed merger or consolidation is contrary to or inconsistent with the A new corp shall be established provisions of this Code or existing laws. set forth in the AOI for corporations organized under the corpo code. the number of shares outstanding. at least 2 weeks prior to the date of the meeting.

CA 1. CA o Of authorizing preferences superior to those of outstanding shares of 1. There was all of the corporate property and assets implied consent on the part of BPI when it did not object during the meeting. If the proposed corporate action is implemented or affected. You should be a SH of a corporation 1. already assumed the assets and liabilities. mortgage. BPI assumed the assets and liabilities of CBPC o Or of extending or shortening the term of corporate existence. DBP has already assumed the debts and liabilities 2. In the case at bar. In case of merger or consolidation.The appraisal right may be exercised by any stockholder who APPRAISAL RIGHT shall have voted against the proposed corporate action. or of authorizing preferences in any prior to the date on which the vote was taken. another issue was on novation. consent of the creditor Uy was not obtained or BAPST V. The REQ for a valid (ASMIC) novation are: Under Sec. Sale. BPI has standing to sue and is the real party in interest. upon surrender of the 1. the corporation shall pay to such stockholder. lease. term of corporate existence. change in the corporation in the cases provided for by law.Any stockholder of a corporation shall have the right to the fair value of his shares: Provided. for any reason. the withdrawing stockholder and the corporation cannot agree on the fair value 3. the fair value thereof as of the day restricting the rights of any stockholder or class of shares. and the third by the Nudibranch 43 . since the latter still continued to exist and was not yet absorbed by MSLAI Q: What are the instances when the right may be exercised? 2. 3. be SH as well Q: Why was MSLAI party to the case? 2. transfer. Investment of corporate funds in another corporation or in a purpose other 3. How right is exercised. 81: o Previous valid obligation 1. the defendant will be unjustly enriched. If the steps/procedure under the Corpo Code o Thus. Unless of course they happen to which will give rise to creation of MSLAI. 42: can only run after DBP 4. pledge or other disposition of all or If within a period of sixty (60) days from the date the corporate action was approved by the substantially all of the corporate property and assets as provided in the Code. pledge or other of all or substantially of ELISCON. The merger did not take effect. a treasurer or a secretary do not necessarily have appraisal right are not followed. 2. REQ: (SDC) MINDANAO SAVINGS V. 82. In case of sale. Uy was correct in 3. A surety agreement than the primary purpose is an accessory contract which cannot exist on its own without the principal Under Sec. after dissenting from a proposed corporate action involving fundamental collect. another by the corporation. lease. or of extending or shortening the anticipation of such corporate action. A spring cannot jump higher than its source. 105: contract. transfer. exchange. SEC did not yet issue the certification. mortgage. Thus. Thus. of the shares. In a close corporation. a SH may. AB Q: Define the appraisal right of a SH. by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of Sec. . 5. between BPI and CBPC. Merger and consolidation there was a valid novation. The obligation of ELISCON is now extinguished and BPI Under Sec. One of the requisites of novation is consent of the creditor. The obligation of Bapst and Chua are likewise extinguished. The SH must dissent to a proposed corporate action involving fundamental MSLAI did not yet assume the assets and liabilities of FSLAI. It now has the right to collect Appraisal right – the right of a SH to demand payment of the fair value of his Principle of unjust enrichment under Article 19 of the CC – if AB will not be able to shares. it shall be determined and appraised by three (3) disinterested persons. Instances of appraisal right. Due to incomplete change in the corporation submission of documents. There was a valid merger any class. Must exercise the right only in cases provided for by law suing FSLAI. Other than the Corpo Code. and stockholders. excluding any appreciation or depreciation in respect superior to those of outstanding shares of any class. In case any amendment to the articles of incorporation has the effect of changing or certificate or certificates of stock representing his shares. 2. AB can enforce the promissory note because there was an effective merger. one of whom shall be named by the stockholder. compel the corporation to purchase his shares when the corporation has sufficient assets in its books to cover Assignment: 81-86 its debts and liabilities exclusive of capital stock TITLE X Sec. 81.. there will be no issuance of Certificate of Merger by the SEC since they are not required to be SH. exchange. Amendment to the AOI that has the effect of: o Consent of the creditor is obtained o Changing or restricting the rights of any stockholder or class of shares. BPI cannot run after ELISCON. That failure to make the demand within such period dissent and demand payment of the fair value of his shares in the following instances: shall be deemed a waiver of the appraisal right.

The findings of the majority of the appraisers shall be final. in case of disagreement as to the value of the shares. the stockholder shall forthwith transfer his shares to the Sec. Any of the instances under the law must be present 2. an no COA. namely the SH and the Corpo o EXCEPT the right of such stockholder to receive payment of the fair The 3 appraisers will now determine and appraise the fair value of the shares. Majority means Q: What happens if the dissenting SH is not paid? 2 appraisers against 1 o The SH shall be restored in all his rights and status as a SH Q: Is the award of the appraisers questionable or appealable? o No. That if the dissenting stockholder is not paid the value of his shares Committee shall be constituted.two thus chosen. o 2. Effect of demand and termination of right. . there was no URE and consequently Note: if the parties cannot agree to the fair value. further.upon payment by the corporation of the agreed or awarded price. wait for the corporation to have URE rd 3 STEP: SH shall transfer the shares . and Q: What is the effect of the exercise of the right? o 3. (To be discussed Lesson learned: if you are the dissenting SH. Payment must be made only when the corporation has unrestricted retained deemed a waiver of the appraisal right. Excluding: any appreciation or depreciation in o In the case at bar. It shall be composed of 3 disinterested persons: within 30 days after the award. Reason: civil cases must be based on The fair value thereof as of the day PRIOR to the date on a cause of action at the time of the filing of the complaint. If there is no which the vote was taken URE at the time of filing. Failure to demand shall be deemed a waiver any stockholder who shall have voted against the proposed corporate action. an Appraisal value thereof: Provided. o 1. LORENZO SHIPPING SH’s shares within 10 days after demanding payment if his Q: What is the reckoning period in determining when the corporation must have shares URE: upon demand. check first for the existence of URE later ons) before filing a complaint. all rights accruing to Q: Who shall determine the Fair Value of the dissenting shares? such shares. Another shall be named by the corporation.The appraisal right may be exercised by taken. and their award Q: After the appraisers make an award. what happens next? shall be paid by the corporation within thirty (30) days after such award is made: Provided. That upon payment by the corporation of the agreed or awarded price. including voting and dividend rights. The dissenting SH must have voted against the proposed action Q: What is the procedure in exercising the right? 3. 83. SH must transfer his shares to the corporation upon payment by the or affected. his voting and dividend rights shall immediately be restored.If the proposed corporate action is implemented 7. there is no COA. The findings of the majority of the appraisers shall be final Nudibranch 44 . when the case is filed. Otherwise. shall be rd This means that a 3 appraiser shall be chosen by both SUSPENDED parties. or even when it is still pending? o Q: What shall be the basis of the amount to be paid? o At the time when the case is filed. Thus. Demand for payment must be made within 30 days from the date the vote is st 1 STEP: SH shall make Written Demand . the corporation shall pay to such stockholder corporation o Q: When shall the corpo pay? Upon surrender of the certificate/s of stock representing the TURNER V. The third by the two thus chosen All rights accruing to such shares. including voting and dividend rights. Submission by the SH of his shares to the corporation for notation of being o Q: What is the effect is the SH does not make a demand? dissenting shares within 10 days from the written demand Failure to make the demand within such period shall be 6. of the fair value of a stockholder's shares until either the abandonment of the corporate action involved or the purchase of the said shares by the corporation.From the time of demand for payment corporation. shall be suspended in accordance with the Initially – BOTH provisions of this Code. Price must be based on the fair value as of the day prior to the date on which making a written demand on the corporation within thirty (30) days after the date vote was taken on which the vote was taken for payment of the fair value of his shares 5. One shall be named by the stockholder. except the right of such stockholder to receive payment of the fair However. appraisal committee shall be established. When the case was filed. the stockholder shall Q: What are the limitations of the appraisal right? forthwith transfer his shares to the corporation. by 4. A value thereof: majority is sufficient to make an award deciding on the fair value. the case shall be dismissed. o The SH shall be paid by the corporation based on the award within That no payment shall be made to any dissenting stockholder unless the corporation has thirty (30) days after such award is made unrestricted retained earnings in its books to cover such payment: and Provided. 1. earnings (most important) nd 2 STEP: Corpo shall pay the SH . the corporation only had URE during the pendency of anticipation of such corporate action the case.

Since the dissenting SH (transferor) has already case they shall be borne by the latter. If the SEC determines that such stockholder is not entitled to the appraisal right transferred. If the proposed corporate action is abandoned or rescinded by the corporation. the latter is stockholder to receive payment was unjustified. When an action is filed by the dissenting SH and his refusal to accept CUA V. what must the SH do? Within ten (10) days after demanding payment for his shares. and all dividend distributions which would have accrued on such shares shall be paid to the transferee. o His right to be paid shall be terminated or Q: What happens when the dissenting shares are transferred? 3. unless the refusal of the transferred his right to another (transferee). He is not entitled to the fair value of the share. Where the price which the corporation offered to pay the dissenting will then be given the fair value of your share. entitled to all rights and status of a SH. When demand for payment is withdrawn with the consent of the corporation. same as the fair value determined by the appraisers Q: What happens if the dissenting SH is paid? o 2. the rights of the transferor as a Commission where such approval is necessary. His failure to do so shall. Disapproved by the SEC where such approval is necessary. however. his status as a stockholder shall shares shall be paid to the transferee. When he costs and expenses shall be assessed against the corporation. at the option of the corporation. When right to payment ceases. and the certificates consequently canceled: 1. You want to get out of the company GR: The corporation shall bear costs in the ff instances: because you disagree with a proposed corporate action. in which No one. rights of transferee. Who bears costs of appraisal.Within ten (10) days after demanding payment for his shares. Q: After demanding payment. such demand for payment is dissenting shares. The transferee shall have all the rights of a regular which would have accrued on his shares shall be paid to him stockholder. his voting and o 1. or if the Securities and Exchange Commission dissenting stockholder under this Title shall cease and the transferee shall have all the rights determines that such stockholder is not entitled to the appraisal right. The rights of the transferor as a dissenting stockholder Q: What is the effect of extinguishment? under this Title shall cease and The dissenting SH’s status as a SH shall be restored. Sec. 84. 85. all been paid. 86. Q: Who shall bear the cost of appraisal? The essence of appraisal right of a SH is that you want to get It depends: back your investment. or if the proposed corporate action is rights under this Title.No demand for payment under this Title may be representing his shares to the corporation for notation thereon that such shares are withdrawn unless the corporation consents thereto. or o If shares represented by the certificates bearing such notation are 4. and all dividend distributions which would have accrued on his shares shall be paid to him. Where an action is filed by the dissenting SH and his refusal to accept o He shall lose all his rights as a SH permanently payment is unjustified Q: What if the proposed corporate act is abandoned or not pushed through? o The SH shall be restored in all his rights and status as a SH Sec. unless the fair value ascertained by the appraisers is approximately the dissenting share? same as the price which the corporation may have offered to pay the stockholder. OCAMPO payment is unjustified The ff are the REQ for a valid derivative suit: Nudibranch 45 . a dissenting stockholder shall submit the certificates of stock Sec. . and the certificates consequently canceled. a dissenting Q: Can a SH withdraw his appraisal right? stockholder shall submit the certificates of stock representing his shares to the GR: No corporation EXPN: When the corporation consents thereto Q: What must the corporation do upon receipt of the stock certificate/s? o The corporation shall make an annotation thereon that such shares are Q: When is the appraisal right extinguished? dissenting shares 1. If shares represented by the certificates bearing such notation are abandoned or rescinded by the corporation or disapproved by the Securities and Exchange transferred. In the case of an action to recover such fair value. . . SH is lower than the fair value determined by the appraisers o 2. he will not receive the fair value. and all dividend distributions 2. and all dividend distributions which would have accrued on such stockholder to be paid the fair value of his shares shall cease.The costs and expenses of appraisal shall be borne o Q: Who will now have the right to receive the fair value of the by the corporation. Q: What is the effect of failure by the SH to submit the stock certificate/s? 2. terminate his withdrawn with the consent of the corporation. thereupon be restored. If the dissenting stockholder is not paid the value of his EXPN: The SH shall bear costs in the ff instances: shares within 30 days after the award. Notation on certificates. You o 1. If. then the right of said of a regular stockholder. Where the price offered by the corporation is approximately the dividend rights shall immediately be restored.

No part of its income is distributable as dividends filing the suit 2.Non-stock corporations may be formed or organized for: o 3. 88 o Ex: the directors did not do anything to collect receivables amounting 3. etc Nudibranch 46 . a non-stock corporation is one o With respect to a homeowners association. subject to the provisions of this Code on dissolution: In such instances. but the SC added a 5 : any combination thereof. th derivative suit which does not comply with the 4 requisite. 87-95 OPERATIONS shall. or rules governing the corporation to obtain relief Q: What are the valid purposes of a non-stock corporation? (memorize) desired Sec. or VILLAMOR V. th In this case. subject to the Q: Can a non-stock corporation invest its funds in another activity? provisions of this Title. o 1. . 88. . that they are reasonably to its operations shall. when pertinent. The SH take the cudgels in 1. dues trustees. o Social. No appraisal rights are available for the act/acts complained of o Charitable. In this case. defray operational expenses. or officers. right by not voting against the proposed corporate action. by-laws. SC: the SH had appraisal rights but failed to exercise them. o Yes. agricultural and like chambers. That any profit which a non-stock corporation may obtain as an incident are merely incidental. the collection of association where no part of its income is distributable as dividends to its members. 81: sale of all or substantially all the property of the corporation o Fraternal. it is implied that the Subject to the special provisions of this Title governing particular classes of non- corpo should be impleaded because it is the RPI whereas the SH is only stock corporations a nominal party Q: Is the enumeration exclusive? o This was recognized in the Western Institute case o Yes. Must be for any of the purposes under Sec. It was the SH themselves who caused the unavailability to exercise their appraisal o Literary. a canteen business. transaction falls under one of the instances wherein the appraisal right is available o Cultural. He exerted all reasonable efforts and alleges the same with Title. under Sec. The petitioner was a SH/M at the time the acts or transactions The provisions governing stock corporation. exhaust all remedies available under the AOI. particularity in the complaint. 87. Purposes. The is not a nuisance or harassment suit o Religious. Ocampo. Thus. industry. like trade. the 4 requisite was not complied with o Educational. Meaning. they filed a o Scientific. and the 4 other REQ dividends EXPN: Any profit which a non-stock corporation may obtain as an INCIDENT TO ITS Assign: Sec. Reason: it earns money. as long as the profit is used for the purpose it is organized Ex: used to pay salaries. be used for the furtherance of the purpose or purposes for which the corporation was organized TITLE XI Q: What is a good example of a purpose incident to its operation? NON-STOCK CORPORATIONS o With respect to a school. o 4. these are not the main business. but it is operated to that the students and teachers have something to Q: What is a non-stock corporation? eat Sec. UMALE o Similar purposes. o Although not expressly enumerated as a requisite. or th Same REQ as Cua v. but they Provided. whenever necessary or proper. Instead. Definition. Must not own capital stock divided into shares to 1 million which matured in 2016. be used for the furtherance necessary to the operation of the main business of the purpose or purposes for which the corporation was organized. Implead the GR: a non-stock corporation is one where no part of its income is distributable as corporation. non-stock corporation The essence of a derivative suit is that the SH shall file a case on behalf of the corporation in order to prosecute a corporate cause of action because the Q: What are the requisites for a non-stock corporation? directors did not do anything/lift a finger in filing a case.For the purposes of this Code. shall be applicable to subject of the action took place and at the time the action is filed non-stock corporations. laws. SH can now file a derivative suit on behalf of the corpo provided that the REQ are complied with. o Civic service. whenever necessary or proper. to wit: Q: Is a non-stock corporation absolutely not allowed to earn profit? Sue in the name and on behalf of the corporation. except as may be covered by specific provisions of this o 2. the o Professional. a corporation engaging in political purposes is not a valid Q: Why did the SC rule that there is no derivative suit? -.

. unless otherwise provided in the The non-stock corporation must first be dissolved and a new stock corporation articles of incorporation or the by-laws. o No. Right to vote. contend that they were deprived of their right to due process of law because they o 2. and not by his non-stock corporation does NOT have an appraisal right because such contributions right involves shares which applies only to stock corporations EXPN: Unless otherwise allowed under the AOI/BL Q: What do you mean by the word ‘Transfer’? What does it cover? Q: Can a non-stock corporation be converted to a stock corporation by mere amendment of o Transfer covers – sale. but it is the total absence of opportunity to be heard pay association dues. LIMITED – If by-laws provide that regardless of contribution. But still. Reason: because the assets will be converted into capital to be distributed to shares after proper proceedings its members who are now SHs. broadened or denied to the extent specified in the articles of o Acts involving moral turpitude incorporation or the by-laws. Unless otherwise provided in the articles of incorporation or the by-laws. BROADENED – If by-laws provide that for every 5. A member is admitted to the share if he dissents to a proposed corporate action. he shall be entitled to 2 votes. they knew the rules and be authorized by the by-laws of non-stock corporations with the approval of. Sec. a member shall be entitled to 1 vote. What we are talking about are the usual causes o EXPN: unless it is limited. it is obvious that membership o GR: each member is entitled to 1 vote terminates. SC: there was implied waiver of the right to prior notice on the part of the Voting by mail or other similar means by members of non-stock corporations may petitioners because when they joined the church. .Membership in a non-stock Q: For instance. they did not member may vote by proxy in accordance with the provisions of this Code. 90. broadened or denied. Q: Can a non-stock corporation invest its funds in a business other than its primary purpose? Q: Can membership be transferred? o Yes. and regulations including that the church had the right to expel any member by under such conditions which may be prescribed by.000. 94) Q: What are the rules on termination? o Other reasons: it will change the nature of the corporation from non. or denied of termination as stated by the AOI/BL o Example for each: o 1. Reason: it involves the personal element. it will defraud persons who have already contributed or manner and for the causes provided in the articles of incorporation or the by- donated to the non-stock corporation only to find out that it has been laws. Unless so limited. BASA contributed. if he The by-laws must conform to existing laws including the Constitution. Nudibranch 47 . petitioners were o 3. Can he exercise his appraisal right? unless the articles of incorporation or the by-laws otherwise provide. donation. does not abhors. This is unfair because there are certain rules for o EXPN: Unless otherwise provided under the AOI/BL distribution with respect to non-stock corporation that must be complied with (Sec. He is not in good standing if he commits an infraction. . A member of a corporation because of his qualifications and personal attributes. each were not given ample notice of their expulsion as members of the church member shall only be entitled to 4 votes SC: Although every person is entitled to due process of law. When members dies. a member of a non-stock corporation dissents from a proposed corporation and all rights arising therefrom are personal and non-transferable.000 pesos LONG V. regardless of class. the petitioners were continuously reminded and admonished. 89. Thus. It is NOT the lack of prior notice which the law vote.MEMBERS Q: What are the usual CAUSES to terminate membership? o Non-payment of membership dues Q: What are the rules on voting rights? o Acts of disloyalty Sec. corporate action. Termination of membership shall have the effect of extinguishing all rights of converted to a stock corporation a member in the corporation or in its property. a This gave them the opportunity to reform their ways. etc In the case at bar. DENIAL – members must maintain good standing to be entitled to continuously warned for 5 years. 91. An appraisal right is the right of a SH to demand the fair value of his GR: No. Non-transferability of membership. each o Any act inimical to the interest of the corporation member. broadened. Petitioners contributes 10. the Securities and Exchange resolution without the need of giving notice or the reasons for expulsion Commission. as long as the profit is used for the purpose it is organized Sec. inheritance (transfer by descent) the AOI? Unlike in stock corporation where the heirs can own the No. Termination of membership.Membership shall be terminated in the profit to profit. may be set up o Must be terminated in accordance with the MANNER and for the CAUSES provided for in the AOI/NBL Chapter I .The right of the members of any class or classes to vote o Acts of dishonesty may be limited. shall be entitled to one vote.

Election and term of trustees. the minimum number of trustees in a non- voluntarily.Unless otherwise provided in the articles of Q: Who may elect the corporate officers? incorporation or the by-laws. Q: Where shall meetings be held? The term of trustees shall be in a staggered basis GR: Place where the principal office of the corporation is located The Board is composed of 15 trustees. 92 provides: unless otherwise provided in the articles of incorporation or Chapter II . The 15 shall be divided into 3.TRUSTEES AND OFFICERS the by-laws Sec. or on 2018. it is the Board of Directors more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws. time and place of First 1/3 shall serve for 3 years the meeting.The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place No person shall be elected as trustee unless he is a member of the corporation. Assuming EXPN: The by-laws may proved that member may hold their meeting even outside that the elections is held on 2016. shall be applicable to non-stock Chapter III . according to an SEC opinion. the board of trustees of non-stock corporations. . That stock corporation may be directly elected by the members the place of meeting shall be within the Philippines. we must first answer the MT question: Can SH meeting be held thru teleconferencing? Q: When do you apply the last sentence of Sec. Since the minimum number of Q: What are the rules of distribution? (Memorize) Nudibranch 48 . the term of the First 1/3 shall be 1 year. .DISTRIBUTION OF ASSETS IN corporations. Sec. That proper notice is sent Unless otherwise provided in the articles of incorporation or the by-laws. An o 2. Proper notice is sent to al member indicating date. so classify themselves that the term of office of one-third (1/3) of (Not sure ito:) their number shall expire every year. 87 provides: the provisions governing stock corporation. officers of a non. the number of trustees should teleconferencing as long as it complies with Sec. Q: Give an illustration of the term of office of trustees. 92 which states: “trustees thereafter elected o Yes. when pertinent. The place of meeting shall be within the Philippines election shall be held and the Second 1/3 shall serve for 3 years o After one year. They bound themselves through their consent stock corporation is also 5 Assign: same (up to 95) Q: May the term of office be reduced from 3 years to 2 years? Yes. an election shall be held but this time the o 1. time and place of the meeting: and Provided. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. and o After one year. to all members indicating the date. o By adhering to the by-laws. Reason: Sec. 92. GR: Board of Trustees shall elect third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a o EXPN: Unless otherwise provided under the AOI/BL term of three (3) years. Place of meetings. further. a Members’ Meeting of a non-stock corporation may be held thru o However. corporation is located o The answer is not ‘as long as it complies with SEC circular 15’ because Q: How many trustees are allowed? this only applies to board meetings No maximum provided for by law By analogy.”? o GR: SH meeting must be held. 93. The law is silent as to who shall elect corporate officers in non-stock corporation shall. provided 2017. if practicable. the term of the Third 1/3 shall expire. where the principal office of the corporation is located: Provided. 93 insofar as prior notice is sent not exceed the total number of membership of the corporation + it is done within the Philippines The minimum number of trustees is 5. or on of the principal office. and subsequent elections of trustees comprising one. as soon as organized. the corporation A special election shall be held to fill such vacancy and the person elected shall o EXPN: In the city or municipality where the principal office of the only serve for the unexpired term. Upon expiration of their term. or on 2019. An Q: Can members conduct meetings thru teleconferencing? election shall be held and the Third 1/3 shall serve for 3 years To answer this. The law NON-STOCK CORPORATIONS is silent as to the minimum number of Trustees. they became members of the corporation directors in a stock corporation is 5. in the principal office of It is only applied when there is a vacancy in the middle of the term of the trustee. the term of the Second 1/3 shall expire. which may be In a Stock corporation. except as may be covered by specific provisions of this Title. Sec. the unexpired period. as long as it is held in the city or municipality where the principal to fill vacancies occurring before the expiration of a particular term shall hold office only for office is located.

Plan of distribution of assets. religious. All liabilities and obligations of the corporation shall be paid. time and place of such meeting shall be given to each not an intra-corporate dispute. or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation according to a plan of STA. PADCOM societies. organizations or corporations. and which condition occurs by reason of the under the terms and conditions of the agreement (deed of sale) and there was an dissolution. Anything annotated in the title shall be constructive notice to the educational or similar purposes.In case dissolution of a non-stock corporation in Such plan of distribution shall be adopted upon approval of at least two-thirds accordance with the provisions of this Code. No one shall be unjustly enriched at the expense of another. Assets received and held by the corporation subject to limitations thereby? permitting their use only for charitable. shall be distributed in accordance with the provisions of the As to Jurisdiction: SCHA’s contention that RTC did not have jurisdiction since the articles of incorporation or the by-laws. Assets other than those mentioned in the preceding paragraphs. benevolent. or any class or classes of members. This plan of distribution and directing the submission thereof to a vote at a regular or indicates that the non-member benefitted thru the acts of the special meeting of members having voting rights. Lesson: Always check a title for annotations. Must be specified under a Plan of Distribution Q: What is the difference between the Padcom case and the SCHA case? This is to determine whether members may be entitled to o In PADCOM. CLARA HOMES ASSOCIATION V. In any other case. if consent any. societies the Terms and Conditions.A plan providing for the distribution of o There is a jurisprudence implementing this. to the extent that the articles proper body which has jurisdiction is HIGC is erroneous. o 1. Nudibranch 49 . or provide for However. will it still be bound o 3. a non-member assets. was sued by the homeowner’s association before the HLURB. Sec. transferred or conveyed in accordance annotation to the title to that effect with such requirements. assets may be distributed to such persons. distribution. it is thereof and the date. may be adopted by a non. This is a feature of the Torrens system. GASTON distribution adopted pursuant to this Chapter. . No one forced requiring return. satisfied and discharged. within the time and in the manner provided in this Code case is the RTC for the giving of notice of meetings to members. Q: Assuming that you are a non-member but you live in an association and benefit by their Any person or entity may be entitled to distribution under a activities and projects. there is no such annotation profit. o Yes. PADCOM V. . association Written notice setting forth the proposed plan of distribution or a summary o Since such dispute does not involve a member of the association. Gaston cannot be compelled to become members of SCHA by the simple Numbers 1-3 must first be settled before 4 and 5 expedient of including them in its AOI and BL without their express or implied o 4. The proper entity with which to file the member entitled to vote. but not held upon a condition whole world. PADCOM to but the land. adopt a resolution recommending a there was a lamp post which stood in front of their house. ORTIGAS CENTER ASSOCIATION o 2. SPS. It stock corporation in the process of dissolution in the following manner: submitted as evidence photos of the non-members house showing that The board of trustees shall. Must be authenticated under the AOI (HLURB) 2. There is a HLURB circular which provides that a homeowner who has benefitted by the acts of the Q: What are the voting requirements for a plan of distribution of assets? homeowner’s association may be liable for association dues Sec. They bough it voluntarily and agreed to all shall be transferred or conveyed to one or more corporations. Rules of distribution. Assets held by the corporation upon a condition requiring return. there is not intra-corporate dispute in the case at bar because Sps. 94. Sps. Q: Assuming that PADCOM did not see the annotation. by majority vote. whether or not organized for o In SCHA. members. In a case. and Gaston are NOT members of SCHA 2 requirements: o The new name of HIGC is Housing and Land Use Regulatory Board 1. Freedom of association was not violated. HIGC has exclusive of incorporation or the by-laws. or adequate provision shall be made therefore. determine the distributive rights of jurisdiction over intra-corporate disputes affecting homeowners association. not inconsistent with the provisions of this Title. its assets shall be applied and (2/3) of the members having voting rights present or represented by proxy at such distributed as follows: meeting. transfer or conveyance by reason of the dissolution. the title had an annotation providing automatic distribution of assets membership in the homeowner’s association which is binding upon o 5. Can you be charged by the association for association dues? plan of distribution Yes. Automatic membership was provided for transfer or conveyance. as may be specified in a plan of distribution adopted pursuant to this Chapter. shall be returned. 95.

and EXPN: except mining or oil companies. a corporation shall not be deemed a close corporation may provide: corporation when at least two-thirds (2/3) of its voting stock or voting rights is o 1. Definition and applicability of Title. be stated therein. That the contained in the AOI? Or does Sec. within the enterprise to keep outsiders from acquiring any interest in the business and may meaning of this Code.The articles of incorporation of a close Notwithstanding the foregoing. 97. educational institutions and corporations declared to stockholders or directors than those provided in this Code.TAN V. Q: Is Section 97 in addition to Sec. there were 15 trustees indicated under de facto. is one whose articles of incorporation provide that: indicate that they have taken steps to accomplish that objective by shareholders’ o (1) All the corporation's issued stock of all classes. 14 which provides for the general matters which must be The provisions of this Title shall primarily govern close corporations: Provided. For a classification of directors into one or more classes. and closely held corporation? (pwede itanong sa finals) Q: What is a close corporation? Closed – emphasizes a determination on the part of the participants in the Sec. was the election of the 4 who filled the vacancies of corporations the same rules. 14 with respect to close provisions of other Titles of this Code shall apply suppletorily except insofar as this Title corporation? otherwise provides. and at the same time to retain internally the partnership form of was held in a Member’s meeting where all the trustees voted thru doing business. In the case at bar. closed corporation. 14 and 97 Q: Why is there a need for special rules with respect to close corporations? Nudibranch 50 . not exceeding twenty (20). The position of trustees involve trust and confidence A close corporation is also known as a “de facto partnership” Q: What is the best benefit of a corporation or the partnership? Assign: Sec. stock exchanges. SYCIP (Not answered) Quorum is determined by the actual number of trustees. members are allowed to vote by proxy. the need for special provisions to govern valid? close corporation o No. But the actual number is only 11 because 4 had already died ordinary corporation. indicating that they are few in numbers. The shares of a o (2) all the issued stock of all classes shall be subject to one or more closely held corporation are owned by relatively limited number of stockholders) specified restrictions on transfer permitted by this Title. that particular time. The election was held in a members meeting when it should have been held in a trustees meeting. shall be held of record by not more than a specified number of Closely Held – focuses more on the number of shareholders in the corporation at persons. be vested with public interest in accordance with the provisions of this Code. For a classification of shares or rights and the qualifications for owned or controlled by another corporation which is not a close corporation owning or holding the same and restrictions on their transfers as may within the meaning of this Code. Close corporations are usually small business corporations with proxy few stockholders who participate actively in the management of the business o Proxies cannot fill in the vacancies of trustees. 14. and o (3) The corporation shall not list in any stock exchange or make any Q: What are the permissible provisions which may be provided for in the AOI under Sec. each of Q: Can all corporations be close corporations? whom may be voted for and elected solely by a particular class of stock. 97 take the place of Sec. In the case at bar. For a greater quorum or voting requirements in meetings of companies. Reason: Trustees were In other words. banks. to enjoy the best of both worlds elected. public utilities. exclusive of treasury agreement or provision in the AOI shares. subject to the provisions of the following section.A close corporation. The proxies were not the ones partnership. 97? public offering of any of its stock of any class. It would not be fair to apply indiscriminately to the 2 types Q: Since there was a quorum. Sec. o 2. GR: Any corporation may be incorporated as a close corporation. . This is wrong because in a members Q: What is the very objective of a close corporation? meeting. whereas in a Trustee’s To enjoy the advantages of the corporate organization. Articles of incorporation. 95-105 + 2 cases o Corporation – Limited liability o Partnership – Participation in management affairs TITLE XII CLOSE CORPORATIONS Q: What is the difference between close corporation. NOT by the number A close corporation has been described as a corporation de jure and a partnership specified under the AOI. like the limitation of meeting. . A close corporation has special needs and problems different from an the AOI. vote by proxy is not allowed. the election personal liability. A close corporation must both comply with Sec. to take advantage of the benefits of both a corporation and a elected by the SH/M to do their job. insurance o 3. Hence. It is in addition to Sec. 96.

the corporation may. the stockholders of the fails to exercise the option to purchase. If a stock certificate of any close corporation conspicuously shows a restriction Sec. 98. such person o 5. No meeting of stockholders need be called to elect directors. conditions. the provisions of this Code. If stock of a close corporation is issued or transferred to any person who is not and among themselves. So long as this provision continues in effect: Q: What is the effect of the existing shareholder or corporation fails to exercise the pre- Q: What are the effects if the shareholders act as directors? emptive right? o 1. not exceeding twenty (20). The stockholders shall be held to strict fiduciary duties to each other 1. The stockholders shall be personally liable for corporate torts unless is conclusively presumed to have notice of the fact of his ineligibility to be a the corporation has obtained reasonably adequate liability insurance. of shares = NOT more onerous because it does not violate the granting of a pre- The articles of incorporation of a close corporation may provide that the business emptive right with reasonable terms. Kasi mandatory yung provision under 96 whereas merely permissible lang yung provisions sa 97. who are entitled to be holders of record of its The articles of incorporation may likewise provide that all officers or employees or that stock. Sec. Whenever any person to whom stock of a close corporation has been issued or granting the existing stockholders or the corporation the option to purchase the transferred has. or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation Q: What is a good example of a restriction that is more onerous than the granting of the to hold stock of the corporation. the transferring stockholder may sell his corporation shall be deemed to be directors for the purpose of applying shares to any third person. (Feeling ko nagkamali lang si sir. Failure to do so precludes a de jure close emptive right is unreasonable = invalid corporation status”. . conditions or either (a) that he is a person not eligible to be a holder of stock of the corporation. The stockholders of the corporation shall be subject to all liabilities of Q: What are the effects of a transfer of stock in breach of qualifying conditions? directors. more than such number of persons. – o 4. (See Sec. Unless the context clearly requires otherwise. if such acquisition violates the restriction.) Q: What is a good example of a restriction that is NOT more onerous than the granting of the pre-emptive right? Q: May a close be corporation be managed by the shareholders? Ex sa other class: a restriction which provides that only lawyers may be transferees Yes.Restrictions on the right to on transfer of stock of the corporation. Effects of issuance or transfer of stock in breach of qualifying conditions. Validity of restrictions on transfer of shares. stockholder. and if the certificate for such stock conspicuously states such number. the existing stockholders or the corporation o 2. Nakalagay sa memaid with respect to close Ex: a restriction which provides for a pre-emptive right which must be exercised corporation: “the AOI must contain the provisions required by Sec. at its option. qualifications of the persons entitled to be holders of record thereof. and if the certificate for such stock conspicuously shows the the management of the corporation. Dapat 96 yun. period stated therein. Feeling ko lang naman. (See Sec. and period of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. Ex: a restriction fixing the purchase price far below the FMV of the shares = more Q: Can the shareholder raise the defense of good faith? onerous because the term is unreasonable = invalid o No. otherwise. If the articles of incorporation of a close corporation states the number of persons. the same shall not be binding on any restriction. or (c) that the transfer of stock is in violation of a pre-emptive right? (sir calls it pre-emptive right) restriction on transfer of stock. refuse to (Not answered) register the transfer of stock in the name of the transferee. 97 aside from only within 24 hours = more onerous because the period to exercise the pre- the general matters in Sec. and o 3. purchaser thereof in good faith. 100) entitled under any provision of the articles of incorporation to be a holder of This means that they have utmost trust and confidence in record of its stock. Said restrictions shall not be more onerous than 4. notice shares of the transferring stockholder with such reasonable terms. If upon the expiration of said period. and if specified officers or employees shall be elected or appointed by the stockholders. the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. 99. Good faith is not a defense because there is a conclusive Ex: a restriction providing that no shares may be transferred without the consent presumption of knowledge of the restriction of the BOD or SH = more onerous because the condition unreasonable = invalid Q: Are there exceptions to the rules that the shareholder will have conclusive presumption of notice? Nudibranch 51 . instead of the issuance or transfer of stock to any person would cause the stock to be held by by the board of directors. or is conclusively presumed under this section to have. 100) 2. Q: When is a restriction on transfer of shares valid? 3. 14. the transferee of the stock is conclusively transfer shares must appear in the articles of incorporation and in the by-laws as presumed to have notice of the fact that he has acquired stock in violation of the well as in the certificate of stock.

implied acquiescence of all the stockholders. the shares 1.The pre-emptive right of stockholders in between and among such stockholders. or 4. 102 the parties thereto. Shares to be issued in compliance with laws requiring stock offerings the ground that its effect is to make them partners among themselves. may provide that in exercising any voting rights. 96 within the corporate powers is deemed ratified by a director who failed to attend. whether with or without voting rights. or in payment of corporate debts. Amendment of articles of incorporation. An agreement between two or more stockholders. Pre-emptive right in close corporations. 39 – subject to exceptions. (2) of (3). – 1. or as shares determined in accordance with a procedure agreed upon by them. shall be invalidated as between the parties on o 1. Before or after such action is taken. . including reissuance of treasury such agreements are not inconsistent with the articles of incorporation. The provisions of this section shall not impair any right which the transferee 3. is not limited to a 2. to the extent that close corporations shall extend to all stock to be issued. though contrary to subsections (1). 1. shall survive the incorporation of such corporation and shall continue to be valid and binding Sec. 39? any phase of the corporate affairs.Unless the by- to by all the stockholders of the close corporation. CA If a director's meeting is held without proper call or notice. no prompt objection thereto in writing. rd is applicable in the absence of fraud or illegality at the expense of 3 persons like petitioner Q: What if a meeting is required under the AOI. in exchange for property needed for corporate purposes or in discretion or powers of the board of directors: Provided. property or personal services. whether for money. 102 – not subject to exceptions 3. 103. That such agreement payment of a previously contracted debt. or as they may agree. as used in this section.866% of the subscribed capital stock of unless he promptly files his written objection with the secretary of the corporation Motorich. Sec. or 7. effective unless approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock. 2. provide otherwise” Sec. . those required by this Title to be embodied in said articles of incorporation. Q: How is the AOI of a close corporation amended? 5. signed by all stockholders. . shares. Sec. if in writing and signed by Q: What is the difference between the pre-emptive right under Sec. 100. shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. has been consented Sec. relating to o Q: What are the exceptions under Sec. The directors are accustomed to take informal action with the express or may have to rescind the transfer or to recover under any applicable warranty. while Sec. To the extent that the stockholders are actively engaged in the management or Sec. Said Title to be contained in the articles of incorporation or to reduce a quorum or stockholders shall be personally liable for corporate torts unless the corporation voting requirement stated in said articles of incorporation shall not be valid or has obtained reasonably adequate liability insurance. To shares to be issued in good faith with the approval of the corporation shall not be invalidated on the ground that it so relates to the conduct stockholders representing two-thirds (2/3) of the outstanding capital of the business and affairs of the corporation as to restrict or interfere with the stock. When board meeting is unnecessary or improperly held. A written agreement among some or all of the stockholders in a close o 2. No provision in any written agreement signed by the stockholders.Any amendment to the articles operation of the business and affairs of a close corporation. The provisions of subsection (4) shall not applicable if the transfer of Q: When is a board meeting unnecessary or improperly held? stock. any action by the directors of a close corporation without corporation has amended its articles of incorporation in accordance a meeting shall nevertheless be deemed valid if: with this Title. the stockholders shall of incorporation which seeks to delete or remove any provision required by this be held to strict fiduciary duties to each other and among themselves. or express or implied. 39 and Sec. Just because Spouses Gruenberg own 99. or if the close laws provide otherwise. Sec. 39 – applies only to newly issued shares. or minimum stock ownership by the public. CA organization of a close corporation. 101. but there was no proper notice or call? The corporate act cannot become valid. irrespective of where the provisions of such agreements are contained. an action taken therein Sec. All the stockholders have actual or implied knowledge of the action and make transfer for value. written consent thereto is signed by all the Q: What does the term “transfer” cover? directors. o 5. except unless the articles of incorporation provide otherwise. 102 – applies to all held by them shall be voted as therein provided. or o 6. if such be their intent. 2. or of such greater Nudibranch 52 . 4. SAN JUAN V. 102. The provision says “unless the by-laws Q: Enumerate the agreements by stockholders. Agreements by and among stockholders executed before the formation and DULAY V. The term "transfer". it does not follow that the doctrine of piercing of the veil of corporation after having knowledge thereof. Agreements by stockholders.

and of changing or restricting the rights of any stockholder or class of o 3. if any. 42 – investment in corporate the Commission or by all the stockholders. In case any amendment to the articles of incorporation has the effect any subsidiary or affiliate of the corporation. In case of merger or consolidation directors.for any reason. or whenever corporate assets are being o (5) appointing a provisional director. 1. or of extending or shortening the term o 1. Who is neither a stockholder nor a creditor of the corporation or of o 1. o 3.Notwithstanding any contrary provision in the articles of o Until such time as he shall be removed by: incorporation or by-laws or agreement of stockholders of a close corporation. His compensation shall be determined by agreement between him for amending. A provisional director shall have all the rights and powers of a duly disposition of all or substantially all of the corporate property and elected director of the corporation. or oppressive or unfairly prejudicial to the unrestricted retained earnings in its books. mortgage. Whenever any of acts of the directors. With respect to ordinary corporations – must be for any of the cases under Sec. or officers. fix his compensation in the absence of agreement or in the event of disagreement between the provisional director and the corporation. lease. That any incorporation. or fraudulent. deleting or removing any of the aforesaid provisions. including an order: books to cover its debts and liabilities exclusive of capital stock: o (1) canceling or altering any provision contained in the articles of o 2. the Securities and Exchange Commission. or any stockholder's agreement. when the corporation has sufficient assets in its order as it deems appropriate. pledge or other o 2. A provisional director is not a receiver of the corporation and does of corporate existence. which may duly called for the purpose. File a Petition for dissolution with the SEC . With respect to close corporations – may be for any reason o 1. and Including the right to notice of and to vote at meetings of o 4. 81? o 2. officers. . upon written petition by any without prejudice to other rights and remedies available to a stockholder under stockholder. An impartial person o Q: What are the cases provided for under Sec. stockholder of a close corporation may. stockholders. transfer.In addition and generally. exchange. compel the said corporation to a shareholder? purchase his shares at their fair value. any stockholder of a close corporation may: Q: What may the SEC do when there is a petition for the SEC to arbitrate filed by o 1. or by the other corporation. By all the stockholders corporation's business and affairs that the votes required for any corporate action cannot be obtained. funds in another corporation or business or for any other purpose Nudibranch 53 . stockholders. by-laws. not have the title and powers of a custodian or receiver. altering or enjoining any resolution or act of the Securities and Exchange Commission. officers or those in o (4) requiring the purchase at their fair value of shares of any control of the corporation is illegal. at a meeting and the corporation subject to approval of the Commission. whose further qualifications. misapplied or wasted. this Title. compel the dissolution of such corporation or its board of directors. or stockholder. Withdrawal of stockholder or dissolution of corporation. if 1. Deadlocks. . 2. until such time as he shall be removed by order of o There is also appraisal right under Sec. may be determined by the shares. Order of the Commission or the directors or stockholders are so divided respecting the management of the 2. corporation o (3) directing or prohibiting any act of the corporation or its board of o 2 Grounds: directors.Provided. or other persons party to the action. Q: When is there a deadlock? Q: How long will the provisional director serve? Sec. by written petition to the o 2) canceling. or o (7) granting such other relief as the circumstances may warrant. or Commission. o 2. Any stockholder. Q: What is the difference between the appraisal right with respect to ordinary corporations to close corporation? Q: What are the qualifications of a provisional director? 1. o (6) dissolving the corporation. or stockholders. In case of sale. the Commission shall have authority to make such par or issued value. which shall not be less than their In the exercise of such power. assets as provided in the Code. A provisional director shall be: 81. Appraisal Right . 104. 105. proportion of shares as may be specifically provided in the articles of incorporation o 3. either by the corporation regardless of the availability of dishonest. shall have the power to arbitrate the dispute. Of authorizing preferences in any respect superior to those of Q: What are the rights and powers of the provisional director? outstanding shares of any class. with the consequence that the business and affairs of the Q: What are the 2 remedies of the shareholder under 105? corporation can no longer be conducted to the advantage of the stockholders Sec.

Corporation sole. Such corporations may be classified into: o Ex of special law: RA 7798 – amending the education act of 1982 o Corporations Sole. the affairs.RELIGIOUS CORPORATIONS Chapter I . 108. . as soon as organized. 110. o Unless otherwise provided in the articles of incorporation on the by. The powers and Assign: amendment of AOI of close corp up to special corporations. Classes of religious corporations. as trustee. . ROMAN CATHOLIC V. 106. the Securities and Exchange Commission shall not accept or approve provisions on non-stock corporations insofar as they may be applicable. or even resigned) Unrestricted Retained Earnings.Religious corporations may be laws incorporated by one or more persons. The true owner is the organized as non-stock corporations shall not be less than five (5) nor Roman Catholic Faithful. Pre-requisites to incorporation. dulay case. With respect to close corporation – corporation Trustees thereafter elected to fill vacancies. shall hold office only for the unexpired period. 109. . The basis of ownership is not the o Sec. the articles of incorporation and by-laws of any educational institution. the number and term of directors shall be governed by the provisions on stock corporations. 2 cases on authority of trustees shall be defined in the by-laws. That the number of trustees trust shall be in multiples of five (5). however. colleges. Mere amendment of the AOI is themselves that the term of office of one-fifth (1/5) of their number sufficient by the one member of the corporation sole with the concurrence of 2/3 shall expire every year. property and temporalities of any religious denomination. sect Nudibranch 54 .For the purpose of administering and managing. TITLE XIII SPECIAL CORPORATIONS Chapter II . 116) Q: What is the difference between the 2? Q: Is there any pre-requisite before incorporation of an educational corporation? o Corporation Sole – 1 member/incorporator Sec. The corporation sole is merely holding the property in more than fifteen (15): Provided. so classify aggregate in order to increase membership.Except upon favorable o Religious Society – 2 or more members/incorporators recommendation of the Ministry of Education and Culture (Now Department of Religious corporations shall be governed by this Chapter and by the general Education). With respect to ordinary corporation – no need sufficient assets to cover debts Only in case of vacancy (Such as when a trustee has died.Educational Corporations Q: What is a religious corporation? Q: What is an educational corporation? A corporation composed entirely of spiritual persons and which is organized for It is a stock or non-stock corporation organized to provide for facilities for teaching the furtherance of a religion or perpetuating the right of the church or for the or instruction administration of church or religious works or property Q: What provisions govern educational corporations? Q: What are the classes of religious corporations? Sec. and (See Sec. What is required is that the corporation has been removed. o Q: When does the rule with respect to the serving of unexpired period Q: What is corporation sole? of the term apply? Sec. Board of trustees. Incorporation. BISHOP LAZARO laws. o Religious societies or Corporation Aggregate (See Sec.Educational corporations shall be governed by special Sec. the board of trustees of incorporated schools. . occurring needs sufficient assets to cover debts and liabilities exclusive of capital before the expiration of a particular term. special corporations With respect to Stock: o For institutions organized as stock corporations. . DAVAO Q: What are the rules as to number of trustees and their terms? There was no violation of the constitutional requirement which provides that With respect to Non-Stock: agricultural lands must be 60% Filipino owned. A majority of the trustees shall constitute a quorum for the transaction of business. 107. and liabilities exclusive of capital. of the membership of the organization for whom he acts as trustee o Q: Give an illustration of the staggering term of BOT. IGLESIA EVANGELICA V. Trustees elected thereafter to Q: What is the difference between an ordinary corporation and a close corporation? fill vacancies caused by expiration of term shall hold office (See memaid for table) for five (5) years. or other There is no need to dissolve the corporation sole to convert it to a corporation institutions of learning shall.Trustees of educational institutions corporation sole. 2. He is not the owner if such property. 110) and by the general provisions of this Code.

religious society or order Q: What is required to be filed when filing AOI? concerned represented by such corporation sole regulate the method Sec. sect or church. provided that it has obtained a court order from the RTC of the Commission articles of incorporation setting forth the following: province where the property is situated. rabbi or presiding Q: How are vacancies filled in religious corporation? elder. rabbi or or mortgage has been given by publication or otherwise in such manner presiding elder. by the chief archbishop. priest. rabbi or other presiding elder of such religious denomination. sect or church must file with the Securities and Exchange o Yes. selling. minister. Acquisition and alienation of property. or letters of appointment. Filling of vacancies. rabbi bishop. intervention of the courts shall not be necessary. rabbi or petition. or order regulate the method or manner of o The articles of incorporation may include any other provision not acquiring. priest. before filing.The articles of of acquiring. church. denomination. regulations and discipline shall control. sect or church are not inconsistent with his becoming a the province where the property is situated upon proof made to the corporation sole and do not forbid it. o Such corporation may sell or mortgage real property held by it by o 2. the purposes. bishop. estate and properties of the religious denomination. minister. sect or church within his territorial granted. sect. minister. minister. religious society. priest. priest. and that it is to the temporalities and the management of the affairs.The successors in office of any chief archbishop. Submission of the articles of incorporation. a corporation sole may be formed by the chief archbishop. selling and mortgaging real estate and personal incorporation must be verified. rabbi or presiding elder shall become a corporation sole copy of their commission. and accompanied by a copy of the commission.In order to become a corporation sole. verified by affidavit or affirmation. by the corporation sole to administer the temporalities and manage the affairs. for the use. sect or church. the person or persons authorized and empowered by the rules. minister. . priest. or church. sect or church incorporated as a corporation sole. and the archbishop. and may be opposed archbishop. Articles of incorporation. and accompanied by the corporation sole on their accession to office and shall be permitted to transact the documents mentioned in the preceding paragraph. minister. chief archbishop. bishop. and may receive bequests or gifts for such Sec. bishop. church theretofore administered or managed by him as such chief archbishop. regulations or discipline of the represented by the corporation sole: religious denomination. regulations of the religious denomination. holding. and Q: Is there any exception to the necessity of court intervention? o 5. or established and located. minister. priest. estate and properties interest of the corporation that leave to sell or mortgage should be of his religious denomination. business as such on the filing with the Securities and Exchange Commission of a bishop. priest. bishop. rabbi or presiding elder shall be held in trust by him as a or presiding elder of any religious denomination. Sec. certificate of election. duly and all temporalities. petition. This done by filing a verified o 1. he is charged with the administration of the and for such time as said court may have directed. priest. 113. regulations and discipline of the religious denomination. rabbi or presiding elder in a corporation sole shall become articles of incorporation. priest. purpose. . 111. During any vacancy in the office of chief archbishop. sect or church to which he belongs. describing such territorial jurisdiction. priest. The place where the principal office of the corporation sole is to be o Yes. That in cases where the rules. parsonages and cemeteries thereof. bishop. bishop. Sec. minister. such chief archbishop. by affidavit or affirmation of the chief property. bishop. according to the rules. When the rules. rabbi of presiding elder is required by any member of the religious denomination. sect Yes. Q: Can a corporation sole acquire property? priest. minister. sect or church to be filled. Q: What must be contained in the AOI of a corporation sole? benevolent or educational purposes. bishop.Any corporation sole may purchase and hold real estate and personal property for its church. rabbi or presiding elder. or church. Such notice thru publication or any other manner under the presiding elder of his religious denomination. regulations and discipline of his religious obtaining an order for that purpose from the Court of First Instance of denomination. That the rules. minister. behalf and sole benefit of his religious corporation sole. The application for leave to sell or mortgage must be made by jurisdiction. certificate of election or letter of appointment of such chief archbishop. The manner in which any vacancy occurring in the office of chief rabbi or presiding elder acting as corporation sole. . That as such chief archbishop. charitable. duly verified. o Provided. From and after the filing with the Securities and Exchange Commission of the said bishop. minister. Nudibranch 55 . duly certified to be correct by any notary public. satisfaction of the court that notice of the application for leave to sell o 3. 114. . sect or church represented asylums. he desires to become a corporation sole. or mortgaging the estate contrary to law for the regulation of the affairs of the corporation. bishop. orphan regulations or discipline of the religious denomination. such rules. as the case may be. rabbi or presiding elder of any religious Q: Can a corporation sole sell or mortgage its property? denomination. 112. minister. o 4. sect or certified by any notary public. including hospitals. schools. holding. colleges. which place must be within the Philippines. That he is the chief archbishop. priest. sect or church and that court order shall be made.

That the religious society or religious order. forbidden by competent authority or by the constitution. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation. or any ordinary business is concerned diocese. which carries with it the power to alter or repeal them Q: What are the limitations to the exercise of this power? Nudibranch 56 . or the chief o 3. religious denomination. or the diocese. o 2. 115. rules. prescribed by the laws of the religious society or religious order. which place must be within the Philippines. regulations. The names. or by competent Whatever is left of the corporation’s assets will be distributed to its authority. Dissolution. or discipline of the o This refers to the settlement of debts and liabilities to unpaid creditors. or diocese. Q: What is dissolution? Upon approval of such declaration of dissolution by the Securities and Exchange The extinguishment of franchise to be a corporation and the termination of its Commission. Q: What are the methods of dissolution? articles of incorporation verified by the affidavit of the presiding elder. or district organization of the religious denomination. 116. o 4.A corporation sole may be dissolved and its affairs settled the religious society or religious order. or o 2. and Q: How are religious corporations dissolved? o 6. synod. . Expiration of corporate term of which it forms a part. or diocese. synod. may. Dissolution by shortening corporate term denomination. synod. and residences of the trustees elected by Sec. estate and properties of the corporation sole during the vacancy shall exercise all o 5. or diocese. the corporation shall cease to carry on its operations except for the corporate existence purpose of winding up its affairs Q: What are the steps in corporate dissolution? Q: What is a religious corporation? STEP 1: Termination of the corporation at least as far as the right to go on during Sec. That the religious society or religious order. or Especially public utilities. or district organization of any religious denomination. 117. . regulations or discipline of the religious denomination. DISSOLUTION o 4. o 3. established and located. unless forbidden by the constitution. nationalities. That the incorporation of the religious society or religious order. sect or church. minister. submission of a verified o 2. priest. sect or STEP 2: Winding up of its affairs church. upon written consent and/or by an affirmative vote at a meeting stockholders or members called for the purpose of at least two-thirds (2/3) of its membership. properties and estate by filing with the Securities and Exchange Commission. Sec. or of The declaration of dissolution shall set forth: the diocese. The authorization for the dissolution of the corporation by the TITLE XIV particular religious denomination. With respect to Corporations Sole.Any religious society or religious order. The name of the corporation. sect or church of which it is a part. incorporate STEP 3: Termination of the corporation for all purposes for the administration of its temporalities or for the management of its affairs. sect or church. Dissolution where creditors are not affected o 1. Dissolution where creditors are affected district organization is a religious organization of a religious o 3. or church o 1. Involuntarily.A corporation formed or organized under the or clerk or other member of such religious society or religious order. or district organization. provisions of this Code may be dissolved: synod. Voluntarily or setting forth the following: o 1. sect or church. o 2. the board of trustees to be o 1. synod. at a duly convened Q: Who submits the verified declaration? meeting of the body. The reason for dissolution and winding up. rules. district organization desires to incorporate for the administration of its Reason: Congress have the inherent power to make laws affairs. sect or church. sect. Religious societies. or archbishop. synod. That at least two-thirds (2/3) of its membership have given their declaration of dissolution for SEC approval written consent or have voted to incorporate. synod. or district voluntarily by submitting to the Securities and Exchange Commission a verified organization to serve for the first year or such other period as may be declaration of dissolution. rabbi or other presiding diocese. secretary. bishop. . Methods of dissolution. not less than five (5) nor more than fifteen (15). The sole incorporator of a corporation sole. The place where the principal office of the corporation is to be the powers and authority of the corporation sole during such vacancy. properties and estate. or district organization desiring to incorporate is not elder of the religious denomination. Legislative enactment o 4.

and any part thereof” By a resolution duly adopted by the affirmative vote of the stockholders owning at 3. The dissolution must NOT impair existing obligations of least 2/3 of the outstanding capital stock or of at least 2/3 of the members contracts or take away vested rights Of a meeting to be held upon call of the directors or trustees Q: Can Congress dissolve by legislative enactment even After PUBLICATION of the notice of time. SEC may arbitrate a corporation OF DISSOLUTION. Suspension or revocation of Certificate of Registration of a because the corporation failed to follow the required procedure under the corporation corporation code. Art XII. Election of corporate officers A copy of the resolution authorizing the dissolution shall be CERTIFIED (Certificate o 4. Certificate of Dissolution issued by the SEC prejudice to the general public) o 2. Mismanagement of a close corporation VESAGAS V. shall be removed or impaired a corporation does not prejudice the rights of any creditor having a claim against either by the subsequent dissolution of said corporation or it. Board Resolution 3. C. and o 3. Sec. Continuous inoperation for at least 5 years such franchise or right be granted except under the 5. Sec. nor any liability Q: Explain the procedure with respect to dissolution where no creditors are affected. say San Beda? o For 3 consecutive weeks in a newspaper published in the place where Yes. Order of the SEC in cases provided for under existing law. Refusal to comply/defiance of any lawful order o 3. directors. provided that the limitations are complied with the principal office of said corporation is located. alteration. 118. These alone do not prove dissolution 1. Failure to formally organize and commence corporate business o If no newspaper is published in such place. Serious misrepresentation as to what the The 3 documents required to prove dissolution corporation can do/is doing (to the great o 1. fraudulent. rules and which is signed ) by a majority of the board of directors or trustees and regulations o Q: What is the certification all about? Q: What are the grounds in which a petition for dissolution That the majority of the board is authorized by corporation may be filed with the SEC? and the required vote is obtained 1.A. Deadlocks in a close corporation The Securities and Exchange Commission shall thereupon issue the CERTIFICATE Upon petition. trustees. Q: What are the grounds to suspend/revoke The corporation merely submitted the following documentary evidence: board COR? resolution and minutes of the meeting. or officers. Violations by a corporation COUNTERSIGNED by the secretary of the corporation. its stockholders. the dissolution may be effected by any subsequent amendment or repeal of this Code or of By majority vote of the board of directors or trustees. Fraud in procuring the COR The procedure in dissolution must be strictly followed 2.If dissolution of directors. then in a newspaper of within 2 years from the issuance of Certificate of Incorporation general circulation in the Philippines. or officers. Sec. 1987 Constition: “xxx neither shall any 4. Q: What do you mean by “formally organize or After sending such NOTICE to each stockholder or member either by registered commence”? mail or by personal delivery at least 30 days prior to said meeting. Corporate assets are being longer existed misapplied/wasted On the issue of WON the corporation was dissolved. members. Illegal. Grounds: 1. 1. and order dissolution 3. members. 2. stockholders. Certification countersigned by the majority of the board and signed of the SEC of acts which would amount to grave by the corporate secretary authorizing the dissolution violation of its franchise Nudibranch 57 . place and object of the meeting private entities. period or repeal by the Congress when the COMMON GOOD so 6. Failure to file by-laws within the required condition that it shall be subject to amendment. 145. 11. Amendment or repeal: “No right or remedy in prescribed period favor of or against any corporation. trustees. 2. The defense of Vesagas was the corporation no corporation/SH. dishonest. Failure to file required reports in appropriate requires forms as determined by the SEC within the 2. Members of the corporation complained that they were stripped off their oppressive or unfairly prejudicial to the membership without due process. the SC held in the negative 4. . Voluntary dissolution where no creditors are affected. incurred by any such corporation.

A voluntary dissolution may dissolution of a corporation may prejudice the rights of any creditor. o One of its directors or trustees. members.Where the Sec. and if no such objection is sufficient. and the material allegations of the petition are true. Sec. members. Involuntary dissolution. shortening of the corporate term is not one of the instances stockholders representing at least 2/3 of the outstanding capital stock wherein the appraisal right is available or by at least 2/3 of the members at a meeting of its stockholders or Under Section 81. Nudibranch 58 . Corporate liquidation. 122. appraisal right is available in both shortening and extending the corporate If the petition is sufficient in form and substance. and try any issue made by the OBJECTIONS filed. . Sec. shall nevertheless be continued as a body objections must be fixed not earlier than May 4 and not later June 5 corporate for three (3) years after the time when it would have been so dissolved. and other persons in interest. limitation or is annulled by forfeiture or otherwise. 120. existence. creditors. the corporation is authorized and empowered to o if there be no such newspaper. o That its dissolution was resolved upon by the affirmative vote of the Under Section 37. From and after any such conveyance by the corporation of its A similar copy shall be posted for 3 consecutive weeks in 3 public places in such property in trust for the benefit of its stockholders. 119. o May appoint a receiver to collect such assets and pay the debts of the corporation. however. the corporation is presumed to have complied with required procedure manage the settlement of liabilities and debts under the Corporation Code Q: Explain the procedure with respect to dissolution by shortening the corporate term of Q: Explain the procedure with respect to dissolution where creditors are affected. . the Commission shall proceed to HEAR the petition persons in interest. members called for that purpose. . or whose corporate existence for other o Ex: if the date of entry of the order is April 4. all interest which the corporation had in the property terminates. then the date for filing purposes is terminated in any other manner. municipality or city. principal office of the corporation is situated. 121. but not for the general circulation published in the municipality or city where the purpose of continuing the business for which it was established. do the shareholders still have appraisal right? o All claims and demands against it. the Commission shall. creditors or other fixed in the order has expired. subject to the provisions of this Code on o Secretary or liquidation. The Certificate of Dissolution issued by the SEC is the best evidence of dissolution. fix a date on or before which OBJECTIONS thereto may be filed by any person. the petition be effected by amending the articles of incorporation to shorten the corporate for dissolution shall be filed with the Securities and Exchange Commission. Thru this. it is included. the corporation shall be deemed dissolved o President or without any further proceedings. on the grounds provided by existing laws. the legal interest vests in Upon 5 day's notice. o Timeframe: this means that the date of filing objections must be fixed on a date NOT earlier than 30 days after the order and NOT later than Sec. then in a newspaper of general convey all of its property to trustees for the benefit of stockholders. Thus. any asset distributable to any creditor or It shall render judgment dissolving the corporation and stockholder or member who is unknown or cannot be found shall be escheated to the city or o Directing such disposition of its assets as justice requires. or At any time during said three (3) years. term pursuant to the provisions of this Code. and the beneficial interest in the stockholders. given after the date on which the right to file objections as the trustees. as the case may be. Dissolution by shortening corporate term. a copy of the order shall be published purpose of prosecuting and defending suits by or against it and enabling it to settle and close o At least once a week for 3 consecutive weeks in a newspaper of its affairs. and Shall set forth: Q: If the corporate term is shortened. The petition shall be signed by A copy of the amended articles of incorporation shall be submitted to the o A majority of its board of directors or trustees OR other officers having Securities and Exchange Commission in accordance with this Code. rules and regulations. the management of its affairs. and Yes.A corporation may be dissolved by the Securities and o Which date shall not be less than 30 days nor more than sixty 60 days Exchange Commission upon filing of a verified complaint and after proper notice and hearing after the entry of the order. Upon approval of the amended articles of incorporation of the expiration of the Verified by its shortened term. creditors and others in interest. The function of the receiver is to administer the liquidation. Upon the winding up of the corporate affairs. and circulation in the Philippines. for the Before such date. members. Voluntary dissolution where creditors are affected. . to dispose of and convey its property and to distribute its assets. by an term ORDER reciting the purpose of the petition.Every corporation whose charter expires by its own 60 days after the order. and municipality where such assets are located.

Since the corporation is still subject to suit. as long as the case was filed when the corporation was still in existence. Both are diametrically o 1. Liquidation by a duly appointed receiver Q: What if a corporation has no more assets. The creditors can follow the properties of the assets corporation even beyond the 3 year period under Sec. The case was dismissed by the RTC on the ground other persons in interest. If no SH/members. escheated (forfeited) in favor of the government. Settling with the creditors or debtors. that it had no jurisdiction since the corporation is no longer in existence Assuming that a corporation is already dissolved but the action lasted beyond the WON RTC had jurisdiction? Yes.Except by decrease of capital stock and as otherwise allowed by this Code. ISI amended its AOI to its property to trustees for the benefit of stockholders. 3 year period. Gelano was pending. then that would set a dangerous precedent for the reason that the SH/members Q: What is the priority of obligations of corporations? could easily escape tax liability by the simple expedient of transferring to other 1. SH be liable. CA AND PEPSICO 4. VEGA shall distribute any of its assets or property except upon lawful dissolution and after payment The enactment of Republic Act No. there was a FOREIGN CORPORATIONS substantial compliance of the appointment of a trustee when the lawyers prosecuted the interest of the corporation when it was still in existence Q: What is a Foreign Corporation? Nudibranch 59 . the municipality or city where the asset is located Sec.Creditors persons the property of the corporation. Remaining assets to be distributed to the SH/members REBOLLIDO V. CA during said 3 years. Liquidation = termination. Rehabilitation = continuation Q: What are the methods of corporate liquidation? 1. xxx At any time In the case at bar. can the creditors still collect? 3. Apportioning the amount of profit or loss rehabilitation of the subject bank. 122: Every corporation shall nevertheless be continued as a body corporate for 3 years after the time when it would have been so dissolved. creditors. the creditors may follow the property other persons in interest. 7169 has rendered the liquidation of all its debts and liabilities. the case was filed within the 3 year period. members. GELANO V. In the case at bar. specifically WON PEPSICO is a Real-Party-Interest? Yes. 122: Every corporation shall nevertheless be continued as a body corporate still in existence at the time of filing for 3 years after the time when it would have been so dissolved. and another person. 119) made applicable also in this case Trustee – appointed by the corporation If the government was not allowed to collect taxes which are rightfully due to it. xxx At any time SPS. the corporation is authorized and empowered to convey all of As long as the properties are identifiable to the corporation and transferred to its property to trustees for the benefit of stockholders. Liquidation by the corporation itself TAN TIONG BIO V. during said 3 years. the action may still be prosecuted as long as the corporation was Sec. CIR 2. Liquidation by a trustee to whom the corporation had conveyed the corporate o Yes. the corporation is authorized and empowered to convey all of While the civil case against Sps. may be TITLE XV considered as a trustee contemplated in Sec. the case will still SUBSISTS Assign: Up to foreign corporations Also. no corporation PHILIPPINE VETERANS BANK V. members. 7 years had processes such as summons already elapsed). SH/members/directors/officers who are also creditors 3. Reducing its assets in money opposed to each other. 122 if the assets of the corporation were distributed to the SH/members without first Q: What is the difference between a receiver and trustee? settling the corporation’s debts and liabilities first Receiver – appointed by the corporation or SEC to collect the corporate assets and This is the principle enunciated in American jurisprudence pay the debts of the corporation (Sec. 122. When corporation becomes insolvent . 2. and allow the liquidation proceedings to continue would seriously hinder the o 3. court functus officio and respondent judge has been stripped of the authority to issue orders involving acts of liquidation. creditors. such that both cannot be undertaken at the same time. and shorten its corporate existence. a lawyer who prosecuted and defended the interest of a corporation and appeared on behalf of the corporation before and after dissolution. Q: What is Liquidation? Liquidation connotes a winding up or settling with the creditors and debtors while It is the winding up of the affairs of the corporation by: rehabilitation connotes a reopening or reorganization. To o 2. it is incidentally subject to the court Even if the case continued beyond the 3 year period (in this case. This is an indirect tax evasion.

Q: What right is granted to foreign corporations? 2. Q: In our jurisdiction.A foreign corporation applying for a license to Code. 4. 1. if any. if any. 123. The address. those of the Philippines. including the street number. shares without par value. 2. Sec. The names and addresses of the present directors and percentage of Filipino ownership officers of the corporation. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has Q: What happens when a foreign corporation was granted a license before the effectivity of issued. all notices government agency. Application for a license. owned. Grandfather rule – the combined totals in the investing corporation and the by the appropriate government agency. Incorporation test – the nationality of a corporation is that of the state of 5.Every foreign corporation 9. and series. 124. The laws by which the FC is organized allows Filipino citizens and o Unless already stated in its articles of incorporation. itemized by classes. Sec. Definition and rights of foreign corporations. what are the 2 elements of a o Certified in accordance with law. A license to transact business in this country in 3. investee corporation must be traced (grandfathered) to determine the total 6. organized or existing under any laws other than o The application shall be under oath and. subject to the provisions of Commission to determine whether such corporation is this Code and other special laws. of the Corporation Code (I. requiring certain industries to be Filipino owned (i. of the principal o It shall have the right to transact business in the Philippines after it office of the corporation in the country or state of shall have obtained: incorporation. attesting to the fact that: Nudibranch 60 . 1. and series. entitled to a license to transact business in the Philippines. and Q: What must be contained in the application? o 2.For the purposes of this Sec. 60%-40%) 8. if necessary. 125. o However. par value of shares. o A copy of its articles of incorporation and by-laws.e. shall specifically corporations to do business in its own country or state. The specific purpose or purposes which the corporation incorporation regardless of the nationality of the shareholders intends to pursue in the transaction of its business in the 2. Attached to the application for license shall be a duly executed Q: What are the requirements for the issuance of a license? certificate under oath by the authorized official or officials of the The FC must file an application under oath jurisdiction of its incorporation. . A statement of its authorized capital stock and the o According to a SEC circular. which test do we apply? 7. organized or existing under any laws transact business in the Philippines shall submit to the Securities and Exchange other than those of the Philippines and whose laws allow Filipino citizens and Commission: corporations to do business in its own country or state. Q: From the definition under the Corporation Code. The date and term of incorporation. Rule of Reciprocity) within 2 years from Q: What are the necessary attachments to the application? (Conditions the effectivity of the Code Precedent) o 1. and their Foreign Corporation? o Translation to an official language of the Philippines.e. Application to existing foreign corporations. and which on the date of the effectivity of this Code is authorized to do business in the 10. The FC is formed. Such additional information as may be necessary or Philippines under a license therefore issued to it. The name and address of its resident agent authorized to accordance with this Code and accept summons and process in all legal proceedings and. A certificate of authority from the appropriate pending the establishment of a local office. That said purpose or purposes are the controlling stockholders those specifically stated in the certificate of authority issued 3. . itemized by classes. a foreign corporation is one formed. o 1. set forth the following: This also known as the “Right of Reciprocity” 1. shall continue to have such appropriate in order to enable the Securities and Exchange authority under the terms and condition of its license. shares the Corporation Code? without par value. par value of shares. Control test – the nationality of a corporation is depends upon the nationality of Philippines: Provided. affecting the corporation. . we apply the Control Test in determining aggregate number of shares which the corporation has whether a corporation has complied with the constitutional provisions authority to issue. 100% Filipino. A statement of the amount actually paid in. The place in the Philippines where the corporation Q: How do you determine the nationality of a corporation? (3 tests) intends to operate. the corporation must still comply with the new requirements and to determine and assess the fees payable.

That within six (6) months after each fiscal year of the of the date not exceeding one (1) year immediately prior to licensee.) pesos. Upon the licensee's application therefor and to the applicant: 2. government agency. existing laws applicable to them. Upon proof to the satisfaction of the Securities and 1. Foreign banking. deposit additional securities equivalent in actual market value to two (2%) o 3. 5. or of government-owned or controlled corporations and president or any other person authorized by the corporation. in percent of the amount by which the licensee's gross income for that fiscal year addition to the above requirements. Securities and Exchange Commission. executed by the proper authorities of said corporation. Who may be a resident agent. or if the actual market value of the total securities on deposit has other legal processes may be served in all actions or other legal increased. or shares of stock in domestic insurance companies and banks. in allow the licensee to substitute other securities for those already on form and substance with the SEC to the effect that if the FC shall cease deposit: to transact business in the Philippines or that there is no resident agent. In the case of all other foreign 4. (Sec. 127.000. The Securities and Exchange Commission may. the Securities and Exchange Commission shall require the licensee to the filing of the application.If the Securities and Exchange Commission is o In the event the licensee ceases to do business in the Philippines. Setting forth the assets and liabilities of the corporation as 3. whenever required by law. And allowed by the SEC. Q: Who may be designated as a resident agent? Sec. securities satisfactory to the attached thereto. and other special laws. including the Government of the may commence to transact business in the Philippines and continue to do so for as Republic of the Philippines. the license. To transact business in the Philippines (only) for the purpose or purposes Exchange Commission that the licensee has no liability to specified in such license. a translation deposit with the Securities and Exchange Commission for the benefit of present thereof in English under oath of the translator shall be and future creditors of the licensee in the Philippines. The Securities and Exchange Commission may at its discretion release part of o 4. and annulled in accordance with this Code or other special laws That the applicant is an existing corporation in good 2. Q: What happens when all the requirements are complied with? (Conditions Subsequent) Q: What happens if a corporation ceased to conduct business? Sec.000. or The applicant is solvent and any combination of these kinds of securities. the Commission shall issue a license 1. consisting of bonds or other evidence of o 2. (Sec. As long as the licensee is solvent. stipulation. on whom any summons and decreased. suspended or Filipino citizens and corporations to do business therein. o 1. 126. such foreign corporation Philippine residents. by more than ten (10%) percent of the actual market value of the proceedings against such corporation securities at the time they were deposited. shares of stock in domestic corporations registered in the other governmental agency in the proper cases that: stock exchange. then the SEC can receive summons and legal processes on behalf of the o 2. except foreign banking or insurance corporation. rules and regulations. its political subdivisions and shall likewise be accompanied by a statement under oath of the instrumentalities. long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation. however. no application for license to transact business in the securities if the actual market value of the securities on deposit has decreased by Philippines shall be accepted by the Securities and Exchange at least ten (10%) percent of their actual market value at the time they were Commission without previous authority from the appropriate deposited. . financial and insurance corporations shall.000. The application for a license to transact business in the Philippines indebtedness of the Government of the Philippines. . revoked. comply with the provisions of exceeds five million (P5. FC o Such licensee shall be entitled to collect the interest or dividends on the securities deposited. showing entities. Issuance of a license. Upon issuance of the license. Philippines. 128) Any such foreign corporation shall likewise execute and Q: May the corporation allow the licensee to substitute the securities? file with the Securities and Exchange Commission an agreement or o Yes. 5186.A resident agent may be either: Nudibranch 61 . The Securities and Exchange Commission shall also require deposit of additional corporations. shares of stock in "registered enterprises" as this term is defined in to the satisfaction of the Securities and Exchange Commission and Republic Act No.00) pesos. 128) Written power of attorney designating some person who the additional securities deposited with it if the gross income of the licensee has must be a resident of the Philippines. The laws of the country or state of the applicant allow o Unless such license is sooner surrendered. Within sixty (60) days after the issuance of the license to transact business in the standing. with an actual market value of at In sound financial condition. from time to time. and least one hundred thousand (P100. shall If such certificate is in a foreign language. the satisfied that the applicant has complied with all the requirements of this Code securities deposited as aforesaid shall be returned. o 5. Provided.

in form and Q: Is a license always pre-requisite before a corporation is considered to be substance as follows: ‘doing business’? Such that if a corporation does not have license. Jurisprudence provides for the definition (See Eriks Pte v. then the SEC can receive summons and legal Philippines. Resident agent. Commission shall require as a condition precedent to the issuance of the license to o In case of a change of address of the resident agent. All expenses incurred legal proceedings against such corporation by the Commission for such service shall be paid in advance by the Sec. in consideration of its being granted by the o No Securities and Exchange Commission a license to transact business in the Philippines. opening offices. service of process. Q: What if none of the circumstances are present. CA corporation shall cease to transact business in the WON Petitioner has the capacity to sue? No. o The phrase doing business shall include: (SSOAP) Q: Aside from the resident agent. Philippines. Of good moral character and Commission and that such service shall have the same force o c. 128. and contemplate Provided that: the SEC shall. supervision or control of the FC shall cease to transact business in the Philippines or that there is any domestic business. Of sound financial standing and effect as if made upon the duly-authorized officers of 2." o lawfully transacting business in the Philippines: o Whenever such service of summons or other process shall be made (Provided. then in any action or proceeding the FC legal capacity to sue arising out of any business or transaction which occurred in Nudibranch 62 . CA) executed by the proper authorities of said corporation. o Yes. processes? whether called liaison offices or branches. he must be of good moral character upon the Securities and Exchange Commission. commercial gain or of the All expenses incurred by the Commission for such service purpose and object of the business organization” shall be paid in advance by the party at whose instance the The Corporation Code does not define this phrase service is made. service of any summons or other legal o a. or the transmit by mail a copy of such summons or other legal exercise of some of the functions normally incident to. and any other act or acts that imply a continuity processes on behalf of the FC of commercial dealings or arrangements. attorney designating some person who must be a resident of the Philippines. An individual the Philippines. and consenting that service The Corporation Code itself does not define such terms upon such resident agent shall be admitted and held as valid as if served upon the Under the Foreign Investments Act (RA 7042): duly authorized officers of the foreign corporation at its home office. firm. or shall be without any resident agent in the Petitioner. License Philippines on whom any summons or other legal is required only in transacting business in the Philippines and not required to grant processes may be served. in progressive prosecution of. on whom any summons and other legal processes may be served in all actions or Q: What do you mean by ‘transacting’ or ‘doing business’ in the Philippines? other legal proceedings against such corporation. service contracts. Residing in the Philippines or process may be made upon the Securities and Exchange o b. That in the case of an individual.The Securities and Exchange party at whose instance the service is made. entity or corporation in the no resident agent. who else may receive summons or legal “Soliciting orders. A domestic corporation the corporation at its home office. a non-resident foreign corporation. can the FC still be considered o Any such foreign corporation shall likewise execute and file with the to be doing business? Securities and Exchange Commission an agreement or stipulation. . the Commission shall. appointing o The SEC after the FC executed an agreement/stipulation (as a representatives or distributors domiciled in the Philippines. and process to the corporation at its home or principal office. it shall be his or its transact business in the Philippines by any foreign corporation that such duty to immediately notify in writing the Securities and Exchange corporation file with the Securities and Exchange Commission a written power of Commission of the new address. 1. The sending of such copy by the Commission shall be Receive summons and other legal processes may be served in all actions or other necessary part of and shall complete such service. to that extent the performance of acts or works. it cannot be "The (name of foreign corporation) does hereby stipulate considered to be ‘doing business’? and agree. has no legal capacity to sue. within ten (10) days thereafter. precondition to the issuance of license) with the SEC to the effect that if participating in the management. and of sound financial standing. that if at any time said ERIKS PTE LTD V. transmit by mail a copy of such summons or other legal process to the corporation at its home or Q: What is the function of the resident agent principal office.) within ten (10) days thereafter.

or DC – there is no law in the Philippines which allow this kind of merger duties of stockholders. o Ex: (not sure) assignment of rights/obligation to a domestic corporation Sec. the grant of the 90-day credit term by FC to DC for every Q: Is it possible that a FC conduct business other than the main purpose for which it is purchase made shows an intention to continue transacting with the latter since in authorized to transact? the usual course of commercial transactions. 129. Duly certified by the authorized official or officials of the country or thereto is void. as amended. seems to be whether the foreign corporation is in the Philippines shall obtain an amended license in the event it: continuing the body or substance of the business or enterprise for o 1. o Q: Why is there a need for withdrawal? o Q: What do you mean by duly authenticated? There is only a need for withdrawal in cases of ABSORBED Certified by the appropriate government entity (In the corporation doing business in the Philippines. Amended license. Without license. or officers of corporations to each other or to the Therefore. country.Whenever the articles of incorporation or by-laws of a foreign incorporation: Provided. Allowed by the state of incorporation o 1. Petition for withdrawal laws. A license is necessary only if it is transacting or doing business in the in the Philippines. responsibilities.One or more foreign corporations authorized to transact business in Q: If the AOI has been amended. granting credit term = continuity of commercial dealing = doing Q: Give an example of an isolated transaction. what is the rule? the Philippines may merge or consolidate with any domestic corporation or Sec. o 1. members. That the requirements on merger or consolidation as corporation authorized to transact business in the Philippines are amended. 132. such provided in this Code are followed. 132 is complied with cases with the appropriate government agency. . however. it shall not have access to PH courts state of incorporation. and contemplates. o 2. Amendments to articles of incorporation or by-laws of foreign corporations if such is permitted under Philippine laws and by the law of its corporations. organization or FC – it depends if the country has a law allowing merger dissolution of corporations or those which fix the relations. are they allowed to merge? effective. except such only as provide for the creation. provided that the Sec. any agreement executed o 3. liabilities. the answer is NO. foreign corporation shall. By obtaining the requisite license o The filing thereof shall not of itself enlarge or alter the purpose or However. file with the Securities and Exchange Commission. Q: How is amendment done? o “The term implies a continuity of commercial dealings and o By submitting an application therefor to the Securities and Exchange arrangements. acts or works or the exercise of some of the functions normally incident o The application must be favorably endorsed by the appropriate to. formation. credit is extended to members in GR: No. Sec. The rule is that if a FC does business without license. Philippines. business = needs license. Law applicable. The FC may transact into business only for the purpose it is authorized good standing or to those on whom there is an intent to maintain a long-term EXPN: If the FC undertakes merely an isolated transaction. and in the proper o Yes. A duly authenticated copy of the articles of incorporation or by. . 131.Any foreign corporation lawfully doing business in the Philippines Q: Can a Foreign Corporation merge with a Domestic Corporation? shall be bound by all laws. or one which is not in relationship continuity with the commercial dealings of the corporation Therefore. within sixty (60) days after the amendment becomes Q: How about a FC with another FC. a FC without license is not ipso facto incapacitated from bringing an purposes for which such corporation is authorized to transact business action. and in progressive prosecution of. the performance of Commission. the purpose and object of its government agency in the proper cases. That is why there is a need to define “doing business” Q: When is amended license necessary? Q: How did the court define “doing business”? Sec. 130. Merger or consolidation involving a foreign corporation licensed in the Philippines. we have NSO) in the country of origin Nudibranch 63 . Changes its corporate name. Eriks Pte has no legal capacity to sue. rules and regulations applicable to domestic corporations of the FC can merge with DC only when their respective laws provide that they can merge same class. Indicating clearly in capital letters or by underscoring the change or intent as well as the nature of the transaction changes made. .A foreign corporation authorized to transact business o The true test. organization” (Memorize this!) In the case at bar. . corporation. Desires to pursue in the Philippines other or additional purposes. What is determinative as to whether a corporation is doing business or not is its o 2. to that extent. Moreover. o Q: Is this incapacity curable? How? Q: What is the effect if the license is amended? o Yes. or which it was organized or whether it has substantially retired from it o 2. and turned it over to another.

and the absorbed corporation will or substance of the business or enterprise for which it was organized or whether it cease to exist has substantially retired from it and turned it over to another. and not in the name or for the account of the principal. but such corporation may be sued or proceeded against before Philippine courts authenticated copy of any amendment to its articles of incorporation or or administrative tribunals on any valid cause of action recognized under Philippine laws. 133. file with the Securities and Exchange o (4) Opening offices. shall be permitted to maintain as required by this Title. Failure to file its annual report or pay any fees as required by this consolidation duly authenticated by the proper official or Code. lawfully due to the Philippine Government or any of its agencies or o (1) Soliciting orders. o The act by a non-resident foreign corporation of recruiting Filipino o Q: What happens to the absorbed corporation after merger? workers for its own use abroad constitutes in the law doing business in Its assets and liabilities will belong to the surviving the Philippines. Concrete political subdivisions. Doing business without a license. phrase 'doing business' has been exemption with illustrations. and in proper cases with the appropriate Commission upon any of the following grounds: government agency. corporation. affidavit or other document submitted by such corporation Under the rules and regulations promulgated by the Board of Investments. DELA ROSA o 5. i. That if the absorbed corporation is the foreign normally incident to. Transacting business in the Philippines outside of the purpose or the foreign firm amounting to negotiation or fixing of the terms and purposes for which such corporation is authorized under its license. imposts. within sixty (60) days after such merger or own account. its debts and liabilities will be assumed by the Test of "doing business": Whether the foreign corporation is continuing the body surviving corporation. file with the Securities and Exchange Philippines may be revoked or suspended by the Securities and Exchange Commission. Failure. Failure to appoint and maintain a resident agent in the Philippines as merger or consolidation was effected required by this Title. officials of the country or state under the laws of which o 2.e. Failure to pay any and all taxes. the pursuant to this Title. FMC V. or intervene in any action. regardless of whether the Nudibranch 64 . and in proper cases with the appropriate government branches. among them being o 6. commercial corporation doing business in the Philippines. (Alternative answer: withdrawal is important so that the contracts are actually reduced to writing. This is the reason behind withdrawal: because the corporation ceases to exist Q: What are the grounds for revocation? o Q: If the corporation is the surviving corporation. Revocation of license. however.Without prejudice to other grounds provided by Within sixty (60) days after such merger or consolidation special laws. it transacts business in its name and for its foreign corporation shall. or the exercise of some of the functions o Provided. agency. such independent status. unless proved otherwise. xxx o Whenever a foreign corporation authorized to transact business in the o (2) Appointing a representative or distributor who is domiciled in the Philippines shall be a party to a merger or consolidation in its home Philippines. unless said representative or distributor has an country or state as permitted by the law of its incorporation. WON the company was ‘doing business’? Yes. shall constitute doing corporation will not get pregnant) business even if the enterprise has no office or fixed place of business Q: What is a logical explanation for this? . agencies or Commission. or its successors or assigns. not acting independently of o 7. report. by-laws or of any articles of merger or consolidation within the time prescribed by this Title. what is the rule? Sec. if as follows: any. o 3. and specific solicitations by a foreign firm. . and contemplate to that extent the under the laws of which merger or consolidation was effected: performance of acts or works. Failure to submit to the Securities and Exchange Commission an Philippines. or in the progressive prosecution of. purchases (sales) or service contracts. . to submit Sec. assessments or penalties. suit or proceeding in any court or administrative agency of the o 4. consolidation becomes effective. after change of its resident agent or of his address. 134. the license of a foreign corporation to transact business in the becomes effective. in the Philippines. a copy of the articles of merger or o 1. a copy of the articles of merger or consolidation duly o (10) Any other act or acts that imply a continuity of commercial authenticated by the proper official or officials of the country or state dealings or arrangements. A misrepresentation of any material matter in any application.. whether called 'liaison' offices. the latter shall at the gain or of the purpose and objective of the business organization same time file a petition for withdrawal of it license in accordance with Q: What are the circumstances in this case which constitute doing business? this Title.No foreign corporation transacting business in to the Securities and Exchange Commission a statement of such change the Philippines without a license. conditions of sales or service contracts.

A. which another is cheated Participating in the bidding process constitutes "doing business" because it shows Q: Where there any such malicious acts done by the BOD? the foreign corporation's intention to engage in business here. 136. All taxes.Upon the revocation of any such license to Same definition of doing business (continuity of commercial dealings transact business in the Philippines. furnishing a copy thereof to the appropriate transaction. Any other ground as would render it unfit to transact business in the MR HOLDINGS Philippines. money which is cognizable by the regular courts. Withdrawal of foreign corporations. and misrepresentation o 3. the dismissal of a director is an incorporate dispute which is o 2. Mere control of corporate stocks do not amount to o The effect of this is that: the perpetration of fraud or wrongdoing o 1. EASTERN SHIPPING LINES OREDAIN V. It is not the absence of license but the doing of business without license which prohibits FC from access to the courts Sec. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless all the following requirements are met. dissembling and any unfair way by WON Hutchinson is doing business in the Philippines? Yes. The actions of BBCHI did not amount to fraud but only for the simple collection of compromised or settled. corporation is not sufficient in order to pierce the corporate veil of Sec. 144 of the Corpo Code (penal cognizable by SEC RTC sanction) Nudibranch 65 . All claims which have accrued in the Philippines have been paid. V. o 8. Transacting business in the Philippines as agent of or acting for and in o Thus. LOPEZ A contract entered into by a foreign insurance company without license to do SC dismissed the case since Lopez is not RPI business in the Philippines is not void. cunning. The mere use of “in fraud of o 2. If a corporation is owned by a subsidiary. devise and which are resorted to by one individual to secure and advantage over another by false suggestions or by suppression of truth HUTCHINSON PORTS PHILS. A FC doing business without license has no capacity to sue VELARDE V. The petition for withdrawal of license has been published once a Q: How did the SC interpret the phrase “in fraud of creditors” week for three (3) consecutive weeks in a newspaper of general o Fraud – embraces all multifarious means which human ingenuity can circulation in the Philippines.Subject to existing laws and fiction. The FC is subject to penalty under Sec. the officers or persons who executed the agreement can be liable behalf of any foreign corporation or entity not duly licensed to do for criminal offense business in the Philippines. if any. assessments. Issuance of certificate of revocation. A transaction is isolated depending upon the circumstances government agency in the proper cases. of the SEC. 135. o No. . The jurisdiction over intra-corporate disputes was transferred from SEC Participation in bidding process = intent to engage in business here to RTC pursuant to R. HARRIGAN o 1. the Securities and Exchange Commission shall issue a Isolated Transactions – should not be defined so as to exclude every other corresponding certificate of revocation. and penalties. BF HOMES WON HIC has capacity to sue? No. . lawfully due to creditors” does not in itself throw the case within the SEC’s jurisdiction Harrigan’s the Philippine Government or any of its agencies or political complaint does not sufficiently allege acts amounting to fraud or subdivisions have been paid. it does not mean that the 2 corporations are one and the same Q: Can a FC withdraw its license? What are the requisites? o The mere fact that a corporation owns majority of the stock of another Yes. SUBIC BAY METROPOLITAN AUTHORITY and includes surprise. 8799 (SRC) HOME INSURANCE COMPANY V. There must be allegations of fraud or wrongdoing regulations. imposts. The bidding for the o No. trick. SUMNDAD V. It is valid and enforceable No piercing of corporate veil. o Ex: assignment to a DC of certain right/obligation = no intent to do The Securities and Exchange Commission shall also mail to the corporation at its registered business office in the Philippines a notice of such revocation accompanied by a copy of the certificate WON MR Holdings and Marcopper are one and the same? of revocation. a foreign corporation licensed to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a petition for CASES ON SRC withdrawal of license. The FC has no access to the courts Under the SRC IRR. None that would amount to fraud or misrepresentation concession contract is but an exercise of the corporation's reason for creation or Petitioner’s contention that the case is intra-corporate dispute within the domain existence. or o 9.

There is only the intention to speculate on the securities. Remuneration After the CFC matures. or a class exempt under any of the provisions of Section five hereof or unless sold in corporation with assets exceeding 50M and with 200 or more SHs. Just because no delivery was made it does not follow that there TIMESHARE REALTY V. in the office of the Commission. Nudibranch 66 . unregistered timeshares. the SEC has the incidental power to conduct hearings amendments thereof and its existing by-laws or and render decisions fixing the rights and obligations of the parties instruments corresponding thereto. Mandatory tender offers: comply with SEC rules o A. there is none which would exempt from reporting. who intends to acquire 35% or more of equity shares in a public company shall disclose ONAPAL V. at least 200 of them holding not less than 100 shares of such company Q: What is time sharing? How do you share time? o When SH acquire at least 35% of a Public Corporation.P. Delivery means the act of placing the subject in the actual or corporation is not a simple labor problem but a matter that comes within the area constructive possession to the vendee. 5(c) of PD 902-A applies to a corporate officer’s dismissal. There is still a need to provides for the ff. the following: CEMCO HOLDINGS V.178 (Revised Securities Act) does not state or even imply o Purpose: to regulate activities relating to acquisition of control of the that petitioner as a listed corporation is exempt from complying with the reports listed company and for the purpose of protecting the minority required by the RSA stockholders of a listed company Petitioner as a bank is primarily subject to the control of the BSP and as a o TOR is the remedy or exit to sell the shares at the same price as those corporation trading securities in the stock market. subject to paragraph (9)(E) implement contract is in the nature of a gambling agreement of this Rule. at any transaction exempt under any of the provisions of Section six hereof. otherwise. the Trading Company shall make delivery of the involving a person who is not a mere employee but a SH and officer of the commodity. Procedure for registration. the written contract in question is not illegal but the transaction between registered under subsection (a) of Section four of this Act shall be registered the parties to implement the contract is in the nature of a gambling agreement through the filing by the issuer or by any dealer or underwriter interested in the under Art. NATIONAL LIFE INSURANCE o (36) Unless previously filed and registered with the Commission and SEC is the regulatory agency with power of administration under Section 5. shall least 200 of them holding not less than 100 shares of such company be sold or offered for sale or distribution to the public within the Philippine Tender Offer Rule – a tender offer is an offer by the acquiring person to SHs of a unless such securities shall have been registered and permitted to be sold as public company for them to tender their shares therein as a corporation which is hereinafter provided. There was no actual delivery. 178 . Any person or group of persons acting in concert. However. CA such intention and contemporaneously make a tender offer for the “Commodity Futures Contract” – not illegal but transaction between parties to percent sought to all holders of such class. of corporate affairs and is in fact an intra corporate dispute Q: Is a CFC allowed? o Yes. SEC o Nature: a public announcement that SH has the intention of acquiring a Petitioner is required to comply with IRR with respect to disclosure certain number of shares. whatever the name. Must offer it to the minority Sec. — (a) All securities required to be Thus. if Tender Offer – a publicly announced intention by a person acting alone or in the issuer be a corporation concert with other persons to acquire equity securities of a public company Sec. Requirement of registration of securities. 4. there was no delivery. Corporation registration is just one of several TC only subtracted the loss incurred by the purchaser requirements before it may deal with timeshares Just like in the law of sales. listed on an exchange or a corporation with assets exceeding 50M and with 200 or more SHs. it is under SEC supervision of the majority SH if the minority SH do not agree to the transaction There are certain securities exempted from the legislation provision. 2018 of the Civil Code which entitles private respondent to refund from sale thereof. of a sworn registration statement petitioner what she has paid with respect to such securities. containing or having attached thereto.P. CA the CFC is invalidated Mere registration of Timeshare as a corporation does not authorize it to deal with TC only made a final settlement regarding purchase.Sec. — (a) No securities. in Rule 19(2) of the Amended Implementing Rules and Regulations of the SRC this case.1(n) of brought up to date: the SRC. it must first offer to the minority SH the equivalent of their shares UNION BANK V. not authorized commodity B. 8. there must be delivery A corporation must first comply with the requirement of registration of the In this case. except of a o Public company – A corporation which is listed on an exchange. Thus. Sec. It can exercise powers necessarily implied to its express powers or (a) A copy of its articles of incorporation with all incidental thereto. 5 (a) (3) of the B.

certified by an independent certified public accountant. The reportorial requirements of Subsection 17.2 hereof shall file with the Commission: o a) Within one hundred 135 days. subject to paragraph (9)(E) of this Rule. Shall disclose such intention and contemporaneously may prescribe as necessary to keep current information on the make a tender offer for the percent sought to all holders of operation of the business and financial condition of the issuer. after the end of the issuer’s fiscal year. however. 17. certified by an independent certified public accountant. an annual report which shall include.1. among others. because it gives these SHs access to information on the bank’s financial status and The acquirer shall be required to make a tender offer operations. among others. INTERPORT RESOURCES o An indirect acquisition by petitioner of 36% of UCC shares thru acquistion of non-listed UCHC shares is covered by the mandatory tender offer rule 2. Purpose of TOR 3.1 shall apply to the following: In the event that the tender offer is oversubscribed. Shall be required to make a tender offer to all holders of PVB is a public corporation because Section 17. supported by a fairness opinion provided by an independent Q: What constitute reportorial requirements? financial advisor or equivalent third party. o C. Nature of agency of SEC = can fix the rights and obligations of the parties ABACUS SECURITIES V. 17. profit and loss statement and statement of cash flows. Periodic and Other Reports of Issuers. these annual reports are the only means of keeping in remaining stockholders of the said company at a price touch with the state of health of their investments. resulting in greater transparency on the part of the Bank. and having such tender offer shall be proportionately distributed across Two hundred (200) or more holders each holding at least One hundred both selling shareholder with whom the acquirer may have (100) shares of a class of its equity securities: Provided. AMPIL PHILIPPINE VETERANS BANK V.000. over 51% of the total outstanding equity securities of a public company. such a tender offer shall be required to accept any and all profit and loss statement and statement of cash flows.00) aggregate amount of securities to be acquired at the close of or such other amount as the Commission shall prescribe. Every issuer satisfying the requirements in Subsection 17. Still subject to TOR SEC V. and o b) Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission Nudibranch 67 . a balance sheet. the o c) An issuer with assets of at least Fifty million pesos (P50. who intends to (90) days after notification to the Commission by the issuer that the acquire 35% or more of equity shares in a public company in one or number of its holders holding at least one hundred (100) shares is more transactions within a period of 12 months reduced to less than One hundred (100). and a management discussion and analysis of results of operations.2. Law does not distinguish. The acquirer in o An annual report which shall include. “Acquisition” is construed to include direct or indirect transactions. or such other time as the Commission may prescribe. for such last fiscal year. and Doctrines: a management discussion and analysis of results of operations. 1. If any acquisition of even less than 35% would result in ownership of The reportorial requirements will be beneficial to the veterans-stockholders. a balance sheet. shares. the obligation of such issuer to file reports shall be terminated ninety o B.2 states that a Public Corporation such class for the number of shares so acquired within the is one that owns at least 50M worth of assets + 200 SH. for such last securities thus tendered fiscal year. CALLANGAN Reportorial Requirements – Sec. That been in private negotiations and minority shareholders. 17. such class. Any person or group of persons acting in concert. under this Rule for all the outstanding equity securities to all o For many SHs.000. each holding at least 100 said period.